The Blubber

A federal judge in Texas has blocked a new Federal Trade Commission (FTC) rule that aimed to make it easier for employees to leave their jobs and work for competitors. The rule, which was set to take effect on September 4, has now been halted following the court’s decision.

U.S. District Judge Ada Brown granted a motion for summary judgment filed by the U.S. Chamber of Commerce and other plaintiffs, rejecting the FTC’s request for judgment in its favor. Judge Brown determined that the FTC "exceeded its statutory authority" in creating the rule, labeling the move "arbitrary and capricious." Additionally, Brown concluded that enforcing the rule would cause irreparable harm.

Despite the court's ruling, the decision does not completely bar the FTC from taking action against noncompete agreements. According to FTC spokesperson Victoria Graham, the agency may still pursue "case-by-case" enforcement actions to challenge such agreements. Graham also indicated that the FTC is considering appealing the court’s decision.

In April, the FTC had voted to prohibit employers across the country from implementing new noncompete agreements or enforcing existing ones, arguing that these agreements limit workers’ freedom and suppress wages. However, companies opposing the rule contend that noncompete clauses are necessary to safeguard business relationships, protect trade secrets, and justify investments in training and recruitment.

The Texas ruling is not the only legal challenge the FTC faces regarding this issue. Similar lawsuits have been filed in Florida and Pennsylvania. In Florida, a retirement community successfully obtained a preliminary injunction, preventing enforcement of the rule, but only for the specific plaintiff. Meanwhile, in Pennsylvania, a tree company’s challenge to the rule was dismissed after the court ruled the company had not demonstrated it would be irreparably harmed by the ban, and the case was unlikely to succeed.