A federal rule that would have prohibited U.S. businesses from enforcing employee noncompete agreements was blocked this week by a federal judge in a decision that stops the rule from taking effect nationwide on Sept. 4 as originally scheduled.
Judge Ada Brown of the U.S. District Court for the Northern District of Texas ruled Aug. 20 that the Federal Trade Commission had exceed its legal authority by banning noncompete agreements in employment contracts.
The U.S. Chamber of Commerce, one of the plaintiffs that brought the lawsuit, called the judge’s decision a victory against “government micromanagement of business decisions.”
In July, the same judge had granted a preliminary injunction whose effects were limited to the plaintiffs in the case. This week’s ruling granted the plaintiffs’ summary judgment motion and permanently blocked the FTC rule from being implemented nationwide.
The FTC responded with a post on its website saying that it was “considering an appeal.” The FTC also said that the judge’s decision “does not prevent the FTC from addressing noncompetes through case-by-case enforcement actions.”
An estimated 30 million Americans, or 1 in 5 workers, are employed with noncompete agreements in a wide range of industries. The FTC contends that a ban on noncompetes would lead to higher salaries, boost innovation, and increase patents and startup businesses.
U.S. Chamber of Commerce President and CEO Suzanne P. Clark said the judge’s decision was a “significant win” for the business community and the workers they employ.
“A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage,” Clark said. “We remain committed to holding the FTC — and all agencies — accountable to the rule of law, ensuring American workers and businesses can thrive.”
