A federal judge in Texas has blocked a new Federal Trade Commission rule that would have made it easier for employees to quit their jobs and work for a competitor.
In a ruling Tuesday, U.S. District Judge Ada Brown granted a motion for summary judgment by the U.S. Chamber of Commerce and other plaintiffs and denied the FTC’s motion for judgment in their favor.
In his decision, Brown concluded that the FTC had “overstepped” its statutory authority in establishing its rulemaking. The judge called the rule “arbitrary and capricious.” The judge also concluded that the rule would cause irreparable harm.
Because of the court’s decision, the FTC will not be able to enforce its rule, which the judge ordered to take effect on September 4.
However, the decision does not prevent the agency from enforcing non-compete agreements “on a case-by-case basis,” said Victoria Graham, a spokeswoman 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 concluding new non-compete agreements or enforcing existing non-compete agreements on the grounds that the agreements restrict workers’ freedom and depress wages.
Opponents of the ban, however, argue that they need non-compete agreements to protect their business relationships, trade secrets and investments in training and hiring employees.
In addition to the Texas case, companies also sued the FTC in Florida and Pennsylvania to block the rule.
In the Florida lawsuit brought by a senior living facility, the court issued a preliminary injunction prohibiting enforcement of the rule only for the plaintiff and not for other businesses.
In the Pennsylvania case, the court concluded that the plaintiff, a tree care company, failed to show that the ban would cause it irreparable harm and that the company was unlikely to win the case.
Due to the differing rulings, the matter could ultimately end up before the US Supreme Court.