A federal judge in Texas has issued a ruling blocking a new rule from the Federal Trade Commission (FTC) that aimed to make it easier for employees to switch jobs and work for a competitor. The ruling came in response to a motion for summary judgement filed by the U.S. Chamber of Commerce and other plaintiffs, who argued that the FTC had overstepped its authority in creating the rule.
The judge, Ada Brown, deemed the FTC's rule as 'arbitrary and capricious' and concluded that it would cause irreparable harm. As a result, the FTC will not be able to enforce the rule, which was scheduled to take effect on September 4.
While the court's decision prevents the nationwide enforcement of the rule, the FTC can still address noncompete agreements through individual enforcement actions on a case-by-case basis, according to an FTC spokesperson.
The FTC's rule, passed in April, sought to prohibit employers from implementing new noncompete agreements or enforcing existing ones, citing concerns about restricting workers' freedom and suppressing wages. However, opponents of the ban argue that noncompete agreements are necessary to safeguard business relationships, trade secrets, and investments made in training or recruiting employees.
Aside from the Texas case, similar legal challenges have been brought against the FTC in Florida and Pennsylvania. In Florida, a retirement community secured a preliminary injunction against the rule, while in Pennsylvania, a tree company's lawsuit was dismissed for failing to demonstrate irreparable harm.
The conflicting court rulings indicate a potential path for the issue to be escalated to the U.S. Supreme Court for further resolution.
