Federal judge derails FTC’s sweeping ban on non-compete agreements

In a ruling issued 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 Federal Trade Commission’s petition for a ruling in its favor.

In reaching his decision, Brown concluded that the FTC “exceeded its statutory authority” in 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 ruling, which was scheduled to take effect on September 4, according to the judge’s ruling.

However, the decision does not prevent the agency from addressing non-compete agreements through “case-by-case” enforcement actions, said Victoria Graham, an FTC spokeswoman.

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

the The Federal Trade Commission 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’ freedom and suppress wages.

But companies that oppose the ban say they need non-compete agreements to protect labor relationships, trade secrets and the investments they make to train or hire employees.

Beyond the Texas case, companies have filed lawsuits against the FTC in Florida and Pennsylvania to block the rule.

In a lawsuit filed in Florida by a retirement community, the court granted a preliminary injunction prohibiting enforcement of the rule only for the plaintiff, but not for any other company.

In the Pennsylvania lawsuit, the court found that the plaintiff, a tree company, had failed to prove that it would be irreparably harmed by the ban, and that the company was unlikely to win the case.

The divergent rulings mean the case could eventually reach the U.S. Supreme Court.