A federal judge in Texas has blocked 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.
In a ruling Tuesday, U.S. District Judge Ada Brown granted a motion for summary judgement filed by the U.S. Chamber of Commerce and other plaintiffs, and rejected the FTC's own petition for a judgement in its favor.
In reaching his decision, Brown concluded that that the FTC "exceeded its statutory authority" in 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 decision, the FTC won't be able to enforce its rule, which was set to go into effect on Sept. 4, according to the judge's ruling.
Still, the decision does not prevent the agency from addressing noncompete agreements through "case-by-case" enforcement actions, said Victoria Graham, an FTC spokesperson.
The FTC is also considering appealing the court's decision, Graham said.
The FTC voted in April to prohibit employers nationwide from entering into new noncompete agreements or enforcing existing noncompetes, saying the agreements restrict workers' freedom and suppress wages.
But companies opposing the ban argue they need noncompete agreements to protect business relationships, trade secrets and investments they make to train or recruit employees.
Apart from 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, prohibiting enforcement of the rule just for the plaintiff, but not any other company.
In the Pennsylvania lawsuit, the court concluded that the plaintiff, a tree company, failed to show it would be irreparably harmed by the ban and that the company wasn't likely to win the case.
The divergent rulings mean the issue could end up working its way to the U.S. Supreme Court.
On June 26, Gov. Daniel J. McKee vetoed legislation that would have banned noncompete clauses in Rhode Island workplaces.
Sponsored by Sen. Matthew L. LaMountain, D-Warwick, and Rep. Jacquelyn Baginski, D-Cranston, the ” Rhode Island Noncompetition Agreement Act” would have prohibited nearly all noncompete agreements except for those entered as part of a sale of a business.
McKee said his administration supports “setting reasonable limits on the use of noncompetes” but the act “does not address the valid concerns raised by the local business community.”
The bill cleared the General Assembly at the end of the legislative session on June 13. Though no override vote of the governor’s occurred.
Alex Veiga is a business writer for the Associated Press.
