In a recent federal court case in Texas, 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 was blocked. U.S. District Judge Ada Brown granted a motion for summary judgement by the U.S. Chamber of Commerce and others, stating that the FTC had exceeded its statutory authority in making the rule. The judge deemed the rule “arbitrary and capricious” and concluded that it would cause irreparable harm. As a result, the FTC won’t be able to enforce the rule, which was set to go into effect on September 4. However, the agency may still address noncompete agreements through “case-by-case” enforcement actions.
The FTC had approved a nationwide ban on noncompete agreements earlier in the year, aiming to protect workers from being limited in their job options. Despite hearing from many individuals who had been negatively impacted by noncompete agreements, companies opposing the ban argued that they were necessary to protect business relationships and trade secrets. Some critics also pointed out that the FTC may not have had the jurisdiction to enact such a rule and that it should have been left to Congress. In addition to the Texas case, similar lawsuits have been filed in Florida and Pennsylvania in attempts to block the rule.
In the Florida lawsuit, brought by a retirement community, a preliminary injunction was granted, preventing enforcement of the rule for that specific plaintiff. However, in the Pennsylvania case involving a tree company, the court ruled that the company had failed to demonstrate irreparable harm and wasn’t likely to succeed in the case. This discrepancy in court rulings suggests that the issue surrounding noncompete agreements may eventually reach the U.S. Supreme Court for resolution. The divergent legal outcomes indicate a complex and ongoing debate over the legality and necessity of noncompete agreements in the workplace.
