A federal judge in Texas has blocked a new Federal Trade Commission rule would have made it easier that employees quit their jobs and go to work for a competitor.
In a ruling Tuesday, U.S. District Judge Ada Brown granted a motion for summary judgment filed by the U.S. Chamber of Commerce and other plaintiffs, and denied the FTC’s own petition for judgment in her favor.
In making his decision, Brown concluded that the FTC “exceeded its statutory authority” by enacting the rule, which the judge called “arbitrary and capricious.” The judge also concluded that the rule would cause irreparable harm.
As a result of the court’s decision, the FTC will not be able to enforce its rule, which was set to go into effect on September 4, according to the judge’s ruling.
Still, the decision does not prevent the agency from addressing non-compete agreements through “case-by-case” enforcement actions, said Victoria Graham, a spokesperson for the FTC.
The FTC is also considering appealing the court’s decision, Graham said.
The The FTC voted in April to ban employers nationwide from entering into new non-compete agreements or enforcing existing non-compete agreements, saying the agreements restrict workers’ freedoms and suppress wages.
But companies that oppose the ban argue they need a non-compete agreement to protect business relationships, trade secrets and investments they make to train or recruit workers.
Aside from the Texas case, companies have sued the FTC in Florida and Pennsylvania to block the rule.
In the Florida lawsuit, brought by a retirement community, the court issued a preliminary injunction barring enforcement of the rule only for the plaintiff, but not for any other company.
In the Pennsylvania lawsuit, the court concluded that the plaintiff, a tree company, had not shown that it would suffer irreparable harm from the ban and that the company was not likely to win the case.
The differing rulings mean the issue could ultimately end up before the U.S. Supreme Court.
