A federal judge in Texas has blocked a new Federal Trade Commission rule that would have made it easier for employees to quit their jobs and go 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, denying the FTC’s own request for judgment in her favor.
In reaching his decision, Brown concluded that the FTC “exceeded its statutory authority” by 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 ruling, the FTC will not be able to enforce its regulations, which were set to go into effect on September 4, according to the judge’s ruling.
However, the decision does not prevent the agency from pursuing noncompete agreements through case-by-case enforcement actions, said Victoria Graham, an FTC spokeswoman.
The FTC is also considering appealing the court’s decision, Graham said.
The The FTC voted in April to ban employers across the country not to enter into new non-compete agreements or enforce existing non-compete agreements because the agreements restrict employee freedom and suppress wages.
Companies opposing the ban argue that they need non-compete agreements to protect business relationships, trade secrets and investments they make to train or recruit workers.
In addition to the Texas case, companies in Florida and Pennsylvania have filed lawsuits against the FTC to block the regulation.
In the Florida lawsuit, brought by a retirement community, the court granted a preliminary injunction, prohibiting enforcement of the rule only for the plaintiff, but not for any other business.
In the Pennsylvania case, the court concluded that the plaintiff, a tree nursery, had failed to show that the ban would cause irreparable harm and that the company was unlikely to prevail.
The divergent rulings mean the issue could end up before the U.S. Supreme Court.