A federal judge in Texas has halted the implementation of a new Federal Trade Commission (FTC) rule that would have prohibited employers from requiring non-compete agreements from their workers.
The rule, which was set to take effect across the United States on September 4, has been effectively blocked by the ruling, CNN reported.
US District Judge Ada Brown, based in Dallas, found that the FTC lacks the legal authority to implement such a sweeping ban on non-compete agreements.
Brown said in her ruling: "The Court concludes that the FTC lacks statutory authority to promulgate the Non-Compete Rule, and that the Rule is arbitrary and capricious. Thus, the FTC's promulgation of the Rule is an unlawful agency action.
"It is hereby set aside and shall not be enforced or otherwise take effect on September 4, 2024, or thereafter."
Judge Brown had previously issued a temporary block on the rule in July for a select group of employers while considering a legal challenge brought by the US Chamber of Commerce and tax service firm Ryan.
The plaintiffs, who said it was an overreach of the FTC's authority, sought to have the rule struck down entirely.
In her detailed ruling, Judge Brown criticized the FTC for not providing sufficient justification for the broad ban on non-compete agreements.
"The Commission's lack of evidence as to why they chose to impose such a sweeping prohibition ... instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious," she said.
The FTC, disappointed by the decision, is contemplating an appeal.
FTC spokesperson Victoria Graham said: "Today's decision does not prevent the FTC from addressing noncompetes through case-by-base enforcement actions."
The White House also expressed continued support for banning non-compete agreements, with Press Secretary Karine Jean-Pierre accusing "special interests and big corporations" of working to deny nearly 30 million Americans the chance for better job opportunities.
The US Chamber of Commerce welcomed the court's decision, with Chamber President and CEO Suzanne Clark calling it "a significant win" against what she described as government overreach.
The Chamber has consistently argued that such a ban would disadvantage American businesses, workers, and the broader economy.
