Article Summary –
In April, the Federal Trade Commission (FTC) voted to ban noncompete agreements, clauses that prevent employees from starting their own business or switching jobs within the same field for a certain period after leaving their current job. A preliminary order against the ban was recently issued by Judge Ada Brown in a lawsuit brought by Ryan LLC, a company owned by a Republican mega donor and former tax advisor to Donald Trump. Despite this, the FTC predicts that the ban, if implemented, could increase workers’ wages by up to $488 billion over the next decade, decrease spending on physician services by $74 billion to $194 billion, and stimulate American innovation with an expected 17,000 to 29,000 additional patents filed annually over the next ten years.
The FTC’s Noncompete Agreements Ban Halted by Texas Judge
Trump-appointed federal judge, Ada Brown, issued a preliminary order against the Federal Trade Commission’s (FTC) ban on noncompete clauses, coming into effect in fall. The order relates to a lawsuit by Ryan LLC, a company owned by a Republican mega donor and ex-Trump tax adviser.
Noncompete Agreements and Worker Rights
Noncompete agreements prevent workers from securing better jobs, lower wages, and quash competition, according to the American Federation of Labor tweet. About 30 million American workers, or 18% of the US workforce, are affected by these clauses, which hinder worker mobility and earnings.
Impacts of the New Rule
The proposed rule would ban most new noncompete agreements and necessitate employers to discontinue existing ones. However, noncompetes for senior executives, less than 0.75% of workers, could persist.
The FTC projected the rule would increase workers’ earnings by $488 billion over a decade, and decrease spending on physician services by $74 billion to $194 billion. It would also drive American innovation, with an estimated 17,000 to 29,000 more patents filed yearly.
Court Challenge to FTC Rule
Dallas-based tax services firm, Ryan LLC, argued that the FTC surpassed its authority in banning noncompete agreements. The court concurred that the FTC doesn’t have the authority to implement such a rule. This court decision follows closely on the heels of the Supreme Court’s overturning the Chevron doctrine, leading to judges having more power to challenge federal agencies’ rulemaking authority.
The ruling only restricts the FTC from enforcing the ban against plaintiffs, like Ryan LLC and the US Chamber of Commerce, who filed a lawsuit against the FTC. The final verdict on the merits is expected by next month.
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