The federal judge’s decision Tuesday said the Federal Trade Commission exceeded its statutory authority in implementing a final rule aimed at restricting noncompete clauses.
The Federal Trade Commission’s final rule that would have banned nearly all new noncompete clauses will no longer go into effect Sept. 4, as a federal judge in Texas blocked the rule on Tuesday.
U.S. District Judge Ada Brown first ruled against the ban on July 3, postponing when the commission could enforce it for a group of plaintiffs suing the FTC. She wrote in that decision that the court intended to rule on the merits of the lawsuit on or before Aug. 30.
In Tuesday’s ruling, Brown stated, “the FTC exceeded its statutory authority in implementing the Rule, and the Rule is arbitrary and capricious.” She also wrote that the rule is unreasonably overbroad and imposes a one-size-fits-all approach, language she had used in the July decision.
The FTC’s final rule would have applied to businesses in multiple industries, including biotech and pharma. It would not have applied to those sectors outside the commission’s jurisdiction, such as banking. The rule also would not have applied to noncompete clauses between the buyer and seller of a business.
Had the ban gone into effect Sept. 4, as the FTC had planned, companies would no longer have been able to enter into new noncompetes with employees. In addition, they could only have enforced existing noncompetes for senior executives, defined as those earning more than $151,164 annually who are in a policymaking position, such as a president or CEO.
In a press release following the decision, U.S. Chamber of Commerce President and CEO Suzanne Clark said, “This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions. A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage.”
In a statement to ABC News, FTC spokesperson Victoria Graham said the commission is considering appealing the decision, noting, “We are disappointed by Judge Brown’s decision and will keep fighting to stop noncompetes that restrict the economic liberty of hardworking Americans, hamper economic growth, limit innovation, and depress wages.”
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