Employers across the country can continue to maintain noncompete agreements as their state laws allow after a federal court in Texas struck down the Federal Trade Commission’s (FTC’s) proposed ban on most noncompetes on Aug. 20.
The rule prohibiting most existing and new noncompete agreements was scheduled to take effect Sept. 4.
Judge Ada E. Brown of the U.S. District Court for the Northern District of Texas ruled that the FTC didn’t have the authority to issue such a broad action and that its rule was “arbitrary and capricious.”
“[Brown’s] first line of attack was ruling that the agency didn’t have the power to issue the rule because Congress only authorized it to issue procedural rules to address unfair methods of competition, not substantive rules,” said Jonathan Crook, an attorney in the Charlotte, N.C. office of Fisher Phillips.
Brown found that the rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation, aimed to impose a one-size-fits-all approach with no end date, and failed to consider the positive benefits of noncompetes, Crook said.
“She pointed out that no state in the country has enacted a noncompete ban as broad as the FTC’s rule,” he said. “She questioned why the rule didn’t target specific, harmful noncompetes instead of taking a blanket approach, and she added that the agency failed to sufficiently address potential alternatives rather than a nationwide ban on just about every noncompete.”
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