A federal judge in Texas has blocked a new Federal Trade Commission rule that will make it easier to let employees quit and work for competitors.
In a ruling Tuesday, U.S. District Court Judge Ada Brown granted a motion for summary judgment filed by the U.S. Chamber of Commerce and other plaintiffs, while denying the FTC’s motion for judgment in its favor.
In issuing his decision, Brown concluded that the FTC had “exceeded its statutory authority” by issuing the rule, which the judge called “arbitrary and capricious.” The judge also concluded that the rule would cause irreparable harm.
The FTC will not be able to enforce its rule, which was scheduled to take effect on September 4, according to the judge’s ruling.
However, FTC spokeswoman Victoria Graham said the decision does not prevent the agency from addressing non-compete agreements through “case-by-case” enforcement actions.
Graham said the FTC is also considering appealing the court’s decision.
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 non-compete agreements to protect business relationships, trade secrets and the investments they make in training or hiring employees.
In addition to the Texas lawsuit, companies have sued the FTC in Florida and Pennsylvania to block the rule.
In a Florida lawsuit brought by a retirement community, the court issued a preliminary injunction, barring enforcement of the rule only against the plaintiff, but not any other companies.
In the Pennsylvania case, the court concluded that the plaintiff, a tree business, had failed to demonstrate that the injunction would cause irreparable harm and that the company was unlikely to prevail.
The differing rulings mean the issue will likely go to the US Supreme Court.
