Federal judge in Texas overturns FTC ban on noncompete agreements

A federal judge in Texas has blocked a new rule from the Federal Trade Commission that would have made it easier for employees to quit a job and work for a competitor.

In a ruling Tuesday, U.S. District Judge Ada Brown granted a motion for summary judgement filed by the U.S. Chamber of Commerce and other plaintiffs, and rejected the FTC’s own petition for a judgement in its favor.

In reaching his decision to overturn the ban, Brown concluded that that the FTC “exceeded its statutory authority” in making 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 won’t 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 noncompete agreements through “case-by-case” enforcement actions, said Victoria Graham, an FTC spokesperson.

The FTC is also considering appealing the court’s decision, Graham said.

The FTC in April had voted along party lines to approve a nationwide ban, which would have prohibited noncompetes for all workers. 

The consumer protection agency had heard from thousands of people who said they had been harmed by noncompetes, illustrating how the agreements are “robbing people of their economic liberty,” FTC Chair Lina Khan said at the time. 

But companies opposing the ban argue they need noncompete agreements to protect business relationships, trade secrets and investments they make to train or recruit employees. At the time of the vote, two Republicans said the agency lacked the jurisdiction to enact the rule, arguing that such moves should be made in Congress. 

Apart from the Texas case, companies have also sued the FTC in Florida and Pennsylvania to block the rule.

In the Florida lawsuit, which was brought by a retirement community, the court granted a preliminary injunction, prohibiting enforcement of the rule just for the plaintiff, but not any other company.

In the Pennsylvania lawsuit, the court concluded that the plaintiff, a tree company, failed to show it would be irreparably harmed by the ban and that the company wasn’t likely to win the case.

The divergent rulings mean the issue could end up working its way to the U.S. Supreme Court.