Dallas, Texas – A federal judge in Texas has issued a temporary block on a Federal Trade Commission rule regarding noncompete agreements, a regulation that has faced opposition from various business groups. The rule, which was set to go into effect on September 4, has been put on hold until a decision is reached on the case’s merits by August 30. The ruling comes as a response to a case brought by a Dallas-based tax consultancy and the U.S. Chamber of Commerce.
The FTC rule, which aims to make it illegal for employers to include noncompete agreements in workers’ contracts, could potentially impact millions of workers, as research suggests that a significant number of employees are subject to such agreements. Noncompete agreements are commonly used across a wide range of industries, from technology to healthcare, affecting employees at various wage levels.
Critics of the rule argue that noncompete agreements are essential for protecting proprietary information and investments in training, while proponents believe that these covenants suppress wages and hinder labor market dynamics. Business groups, including the U.S. Chamber of Commerce, have been vocal in their opposition to the rule, filing a lawsuit against the FTC to block its implementation.
In response to the judge’s ruling, the Chamber’s chief counsel expressed satisfaction, characterizing the FTC’s ban on noncompetes as an overreach that exceeds the agency’s authority and sets a concerning precedent for government intervention in business decisions. The FTC, on the other hand, maintains that it has the legal authority to implement such regulations and is currently reviewing the decision.
The plaintiffs in the case have argued that the FTC’s rule goes beyond its statutory authority and lacks a rational basis. The judge found merit in their arguments, suggesting that the Commission’s broad prohibition on noncompete agreements without sufficient evidence of harm could be deemed arbitrary and capricious. The case highlights the ongoing debate surrounding the use of noncompete agreements and the regulatory power of federal agencies in shaping employment practices.