FTC's bid to ban noncompete agreements rejected by federal judge in Texas

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 judgment filed by the U.S. Chamber of Commerce and other plaintiffs and rejected the FTC's petition for a judgment in its favor.

In reaching his decision, Brown concluded 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 Sept. 4, according to the judge's ruling.

Still, the decision does not prevent the agency from addressing non-compete agreements through "case-by-case" enforcement actions, said Victoria Graham, an FTC spokesperson.

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

The FTC voted in April to prohibit employers nationwide from entering into new non-compete agreements or enforcing existing non-competes, saying the agreements restrict workers' freedom and suppress wages.

However, companies opposing the ban argue that they need non-compete agreements to protect their business relationships, trade secrets, and investments in training or recruiting employees.

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

In the Florida lawsuit brought by a retirement community, the court granted a preliminary injunction prohibiting enforcement of the rule only for the plaintiff and not for 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.