Federal judge strikes down major FTC ban on non-compete agreements

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 denied the FTC’s request for a judgment in its favor.

In making his decision, Brown concluded that the FTC “exceeded its statutory authority” when it formulated 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 ruling, the FTC will not be able to enforce its rule, which was set to go into effect on Sept. 4, according to the judge’s ruling.

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

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

The FTC voted in April to bar 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 business relationships, trade secrets and the investments they make to train or recruit employees.

In addition to the Texas case, companies sued the FTC in Florida and Pennsylvania to block the rule.

In the Florida lawsuit, which was brought by a retirement community, the court granted a preliminary injunction, barring the application of the rule only to the plaintiff, but not to any other company.

In the Pennsylvania case, the court concluded that the plaintiff, a tree company, failed to show that it would be irreparably harmed by the ban and that the company was not likely to win the case.

The divergent rulings mean the issue could reach the US Supreme Court.