The Federal Trade Commission’s new rule banning employers from requiring employees to sign non-compete agreements has been struck down by a federal judge, the Washington Post reports.
Tuesday’s ruling by U.S. District Judge Ada Brown in Dallas blocks the ban that had been scheduled to go into effect on Sept. 4.
Brown said the FTC does not have the statutory authority to ban practices it deems unfair methods of competition by adopting broad rules.
“The Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC’s promulgation of the Rule is an unlawful agency action,” Brown wrote in her 27-page order. “(The rule) is hereby SET ASIDE and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter.”
The rule would have made it easier for employees to quit a job and work for a competitor. Approved by the FTC in April by a 3-2 vote, it prohibited employers from enforcing noncompete clauses in most existing employment agreements and banned companies from including them in all future ones.
But last month, Brown issued an order temporarily delaying implementation of the ban while she considered a motion for summary judgment by the US Chamber of Commerce and tax service firm Ryan to strike it down entirely.
In her ruling Tuesday, Brown said that even if the FTC had the authority to adopt the rule, the agency had not justified banning virtually all noncompete agreements.
“The Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition … instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious,” Brown wrote.
FTC spokesperson Victoria Graham said the agency was disappointed with the ruling and is seriously considering a potential appeal. “Today’s decision does not prevent the FTC from addressing noncompetes through case-by-base enforcement actions,” Graham said in a statement.
An estimated 30 million U.S. workers in a wide range of fields are subject to noncompete agreements. Under the FTC’s rule, existing noncompetes for the vast majority of workers would no longer have been enforceable after the rule’s effective date. Existing noncompetes for senior executives – who represent less than 0.75% of workers – could have remained in force but employers would be banned from entering into or attempting to enforce any new noncompetes, even if they involve senior executives. Employers would be required to provide notice to workers other than senior executives who are bound by an existing noncompete that they will not be enforcing any noncompetes against them.
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