Policy and Legal

The Federal Trade Commission does not have the authority to enact the sweeping noncompete ban it finalized in April, a federal judge ruled Tuesday (The Wall Street Journal, subscription).

What’s going on: “U.S. District Judge Ada Brown ruled that the commission’s authority to police unfair methods of competition couldn’t be used to issue substantive regulations that ban an entire category of conduct. ‘The role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do,’” she wrote, adding that the ban was “unreasonably overbroad without a reasonable explanation.”

• The rule—which had already caused companies’ costs to increase in anticipation of the Sept. 4 effective date—sought to prohibit noncompete agreements between employers and their employees.

The NAM’s role: In May, the NAM’s Legal Center filed an amicus brief asking Brown’s court to stay the rule on the grounds that a ban on noncompete agreements would “hamstring innovation in the manufacturing sector and damage the competitiveness of American industry.”

• Brown issued a limited stay in July. Her ruling this week—echoing the NAM’s argument that the rule is  “not reasonably explained”—prohibits enforcement of the FTC rule nationwide.
• “The NAM expressed concerns throughout the rulemaking process, and a 2023 NAM survey showed that a broad noncompete ban would disrupt most manufacturing operations in the U.S.,” NAM Director of Transportation, Infrastructure and Labor Policy Max Hyman said following Brown’s ruling this week.

What’s next: The FTC is considering an appeal of the decision, a spokeswoman told the Journal.

• But “[i]f lower courts remain split as the litigation moves through the legal system, the matter might ultimately fall to … [the] Supreme Court, [which] has taken a dim view of government agencies invoking new regulatory powers from long-ago statutes.”

This post has been edited.