Federal judge strikes down FTC’s ban on non-compete agreements

The judge added that the FTC may have limited authority to make such rules, but that the FTC went too far. “The Court concludes the FTC has some authority to promulgate rules to preclude unfair methods of competition. Indeed, the Act alludes to this power in Section 18. However, after reviewing the text, structure, and history of the act, the Court concludes the FTC lacks the authority to create substantive rules through this method.”

“The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition—that prohibits entering or enforcing virtually all non-competes — instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious,” the judge wrote. 

Also, the court ruled, “the lack of a penalty included with Section 6(g) supports that such provision encompasses only housekeeping rules—not substantive rulemaking power.” He added: “Agencies are creatures of Congress. The Court must look to what Congress explicitly gave the FTC the authority to do. The Court concludes that the structure and the location of Section 6(g) indicate that Congress did not explicitly give the Commission substantive rulemaking authority.”