Federal judge blocks FTC noncompete ban

The Federal Trade Commission does not have authority to enact its ban on noncompete agreements, a federal judge ruled Tuesday.

Judge Ada Brown wrote the FTC's near-total ban is "unreasonably overbroad without a reasonable explanation," siding with the U.S. Chamber of Commerce and tax firm Ryan LLC. Many healthcare organizations include noncompete agreements in employment contracts.

The ban can no longer take effect Sept. 4 as planned or be enforced, wrote Brown, a judge for the U.S. District Court for the Northern District of Texas.

Many hospitals, health systems, physician groups, insurance companies and pharmacy benefit managers use noncompete agreements to prevent former employees from sharing proprietary information with competitors. Prior to the FTC's rule, noncompete agreements have been governed by state laws.

The FTC, which argued noncompete agreements unfairly block workers from switching jobs, proposed the ban in January 2023 and finalized the rule this April.

Related: FTC ban on noncompete agreements delayed by judge

The would-be ban raised many questions for healthcare employers, including how it would affect recruitment efforts for caregivers and whether nonprofit organizations would be fully exempt.

In May, the American Hospital Association, the Federation of American Hospitals and more than 200 other organizations urged the FTC to delay the ban's implementation until related lawsuits had been decided.

Chad Golder, AHA’s general counsel and secretary, said the organization was pleased with the ruling and that the ban would have had a disruptive effect on hospitals and health systems.

FTC spokesperson Victoria Graham said Tuesday the commission is "seriously considering" an appeal. The most recent decision does not keep the agency from addressing noncompete agreements on a case-by-case basis, she said in a statement.

"We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation and depress wages," Graham said.

The ban fits into the FTC's broader strategy to crack down on what it deems to be anticompetitive activity in healthcare and other industries.

“This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions. A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses and our economy at a competitive disadvantage," U.S. Chamber of Commerce President and CEO Suzanne Clark said in a news release.