A recent ruling by a federal judge in Texas has halted a new regulation by the Federal Trade Commission that would have facilitated employees’ ability to leave a job and join a competitor. The decision, made by U.S. District Judge Ada Brown on Tuesday, came in response to a motion for summary judgement filed by the U.S. Chamber of Commerce and other plaintiffs, rejecting the FTC’s petition for a favorable judgement. Judge Brown deemed the FTC’s rule as exceeding its legal authority, labeling it “arbitrary and capricious” and predicting it would result in irreparable harm.
As a consequence of the court’s ruling, the FTC is prohibited from enforcing the rule, which was scheduled to take effect on September 4. Although the verdict doesn’t bar the agency from addressing noncompete agreements on a case-by-case basis through enforcement actions, the FTC spokesperson, Victoria Graham, mentioned that an appeal of the court’s decision is being contemplated.
Earlier in April, the FTC voted to ban employers across the nation from creating new noncompete agreements or upholding existing ones, citing constraints on workers’ autonomy and wage suppression. Conversely, companies that opposed the prohibition argue that noncompete agreements are necessary to safeguard business relationships, confidential information, and investments made in employee training and recruitment.
Aside from the Texas case, other companies have taken legal action against the FTC in Florida and Pennsylvania to block the rule. In Florida, a retirement community succeeded in obtaining a preliminary injunction against the rule’s enforcement exclusively for that specific plaintiff. In Pennsylvania, a tree company failed to demonstrate irreparable harm from the ban, leading to the court’s dismissal of the case. The conflicting rulings suggest that the matter may eventually escalate to the U.S. Supreme Court for further resolution.
