A federal judge in Texas ruled Aug. 20 that the Federal Trade Commission’s ban on most non-compete agreements used in business exceeded its authority and prevented the rule from taking effect the month comes
The ban had been challenged by the US Chamber of Commerce and other business organizations, including associated builders and contractors.
Judge Ada Brown had granted the plaintiffs in the case in July, Ryan v. Federal Trade Commissiona temporary injunction against the enforcement of the ban.
Citing the Federal Administrative Procedure Act, a law that allows a reviewing court to overturn agency actions, Brown described the ban as an unconstitutional exercise of power that was also arbitrary and capricious.
The ban had exempted senior managers as well as situations such as the sale of a company.
The association is “It is very pleased with the court’s decision and has consistently stated that members have valid business justifications for using non-compete agreements, such as protecting confidential information and intellectual property,” it said in a statement. “The new rule would have had a detrimental effect on both member companies and their employees, forcing employers to reframe their compensation and talent strategy.”
Brint Ryan, CEO of the Dallas-based tax consulting firm that first challenged the agency’s ban, wrote that “Noncompetence serves as a cornerstone of mutual trust between employer and employee.”
Federal Trade Commission officials estimate that about 30 million American workers are subject to a non-compete clause or agreement.
North American construction unions had supported the proposal, saying such agreements “artificially depress wages, reduce labor market mobility, and interfere with employees’ ability to improve their working conditions and wages by organizing- yes”.
The agency had issued a final rule on April 23 after commissioners voted 3-2 to approve it.
