A federal judge in Texas has halted a new rule from the Federal Trade Commission that would have simplified the process for employees to resign from a job and join a competitor.
On Tuesday, U.S. District Judge Ada Brown granted a motion for summary judgement filed by the U.S. Chamber of Commerce and other plaintiffs, rejecting the FTC’s petition for a judgement in its favor.
In her ruling, Brown determined that the FTC had overstepped its legal authority in creating the rule, which she deemed “arbitrary and capricious.” She also found that the rule would result in irreversible harm.
Following the court’s decision, the FTC will not be able to implement the rule, which was scheduled to take effect on Sept. 4, according to Judge Brown.
However, the ruling does not prevent the agency from addressing noncompete agreements through individual enforcement actions, as stated by FTC spokesperson Victoria Graham.
The FTC is contemplating appealing the court’s decision, according to Graham.
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In April, the FTC voted to ban employers nationwide from establishing new noncompete agreements or enforcing existing ones, arguing that such agreements limit workers’ freedom and depress wages.
Despite this, opponents of the ban claim that noncompete agreements are necessary to safeguard business relationships, trade secrets, and investments made in training or recruiting employees.
Aside from the Texas case, companies have sued the FTC in Florida and Pennsylvania to block the rule.
In the Florida lawsuit, brought by a retirement community, the court issued a preliminary injunction halting enforcement of the rule solely for the plaintiff, not other entities.
In the Pennsylvania case, the court ruled that the plaintiff, a tree company, did not demonstrate irreparable harm from the ban and was unlikely to prevail in the case.
The conflicting rulings suggest that the matter may eventually reach the U.S. Supreme Court.
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