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Texas Judge Finds FTC Exceeded Authority
On Tuesday, U.S. District Judge Ada Brown in Texas invalidated the Federal Trade Commission’s (FTC) rule banning noncompete agreements, a decision that halts a regulation set to take effect on September 4. The FTC’s rule aimed to render such agreements illegal, impacting an estimated 30 million workers across various industries. Judge Brown’s 27-page opinion concluded that the FTC had overstepped its statutory authority with the rule, labeling it as “unlawful agency action.”
FTC’s Disappointment and Future Actions
After a Federal Judge overturns FTC noncompete agreement ban in Texas, which was initially introduced in April following a 3-2 vote by its commissioners, the rule faced invalidation. They cited evidence suggesting that noncompete agreements suppress wages, hinder entrepreneurship, and disrupt labor markets. The commission had hoped to use the rule to eliminate these agreements from employment contracts and nullify existing clauses for many workers. In response to the ruling, FTC spokeswoman Victoria Graham expressed disappointment, emphasizing the agency’s commitment to combatting noncompete clauses. Graham hinted at a possible appeal and assured that the FTC would continue addressing noncompete issues through enforcement actions on a case-by-case basis.
Impact and Future Prospects
Judge Brown’s ruling contrasts with recent judicial outcomes in other states. Last month, U.S. District Judge Kelley Brisbon Hodge in Pennsylvania upheld the FTC’s authority to impose the rule, rejecting a preliminary injunction sought by a tree-care company. Additionally, a federal judge in Florida temporarily blocked the rule, but only for the plaintiffs in that case. Legal experts, including Julie Levinson Werner of Lowenstein Sandler, anticipate that these conflicting rulings may lead to Supreme Court review. Until then, the status quo regarding noncompete agreements remains intact, with state-level restrictions still in force. Notably, states like California, North Dakota, and Oklahoma have long had prohibitions on such clauses, and other states impose limits based on salary or hourly wages.
After the Federal Judge overturns FTC noncompete agreement ban in Texas, the challenge to the rule was spearheaded by Ryan LLC, a Dallas-based global tax-consulting firm, and supported by business organizations, including the U.S. Chamber of Commerce and the Business Roundtable. The U.S. Chamber of Commerce celebrated the decision, with President and CEO Suzanne P. Clark denouncing the FTC’s proposed ban as an overreach of authority that could disadvantage American workers and businesses.
