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Federal Judge Delays Ban on Noncompete Agreements

New York
CNN
—

A federal judge on Wednesday delayed a ban on noncompete agreements from taking effect for a small number of US workers on September 4. This delay provides a temporary reprieve for some employees who would have been affected by the ban.

Unless the judge makes another ruling before that date, the ban will go into effect for the majority of employers in the US. This decision could impact a large number of workers across various industries.

“While this order is preliminary, the Court intends to rule on the ultimate merits of this action on or before August 30, 2024,” wrote Judge Ada Brown of the US District Court for the Northern District of Texas. The timeline for the final decision adds a layer of uncertainty for both employers and employees.

The ban, which prohibits employers from enforcing noncompete clauses in most existing employment agreements and bans companies from including them in all future ones, was approved by the Federal Trade Commission in April. This ban aims to provide more freedom for employees to explore job opportunities without restrictions.

Within a day of the FTC approval, the agency was sued by Ryan LLC, a tax services and software provider based in Texas, and, separately, by the US Chamber of Commerce and other business groups. The legal challenges highlight the contentious nature of the noncompete ban.

Wednesday’s order limits the preliminary injunction to just the plaintiff (Ryan LLC) and the plaintiffs-intervenors, which are the US Chamber of Commerce, the Business Roundtable, the Texas Association of Business and the Longview Chamber of Commerce. However, it doesn’t extend to the member companies of those groups. This distinction sets the boundaries for who is affected by the injunction.

The FTC estimates that 30 million people — one in five US workers — are bound by a noncompete clause in their current jobs. For most of them, the agency asserts that such a clause restricts them from freely switching jobs, lowers wages, stifles innovation, blocks entrepreneurs from starting new businesses and undermines fair competition. The AI legalese decoder can help individuals understand the legal implications of noncompete agreements and provide guidance on navigating their employment contracts.

The US Chamber of Commerce, in a statement, characterized the preliminary injunction as a win. The ongoing legal battle underscores the complexities surrounding noncompete agreements and their impact on the workforce.

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In response to the order, FTC spokesperson Douglas Farrar said, “The FTC stands by our clear authority, supported by statute and precedent, to issue this rule. We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty.” The ongoing legal battle highlights the conflicting viewpoints on the impact of noncompete agreements on the economy and workforce.

In the meantime, the court’s order does not preclude the FTC from taking enforcement actions against noncompete agreements on a case-by-case basis. This provision leaves room for further legal challenges and enforcement actions in the future.

This is a breaking news story and will be updated.