United States: A federal judge in Texas on Wednesday put a temporary hold on one aspect of the new U.S. Federal Trade Commission rule that was designed with the aim of prohibiting the contracts that employees usually sign to avoid competing with their employers or starting up their own businesses.
U. S. District Judge Ada Brown in Dallas said in a written decision that the FTC, the agency that enforces federal antitrust laws, does not have authority to promulgate rules that could outlaw practices the bureau considers unfair methods of competition, as reported by Reuters.
Noncompetes Impacting Millions of Workers
Some 30 million employees or 20% of the workforce in the United States is who use noncompetes, as stated by the FTC.
Brown, a Trump administration pick, prevented the FTC from enforcing this rule against a group of business organizations, the U.S. Chamber of Commerce — the largest business association in the United States — and tax services firm Ryan, among others, in light of their consolidated legal challenges.
He rejected their application for an injunction that would prevent the rule from being implemented across the country, arguing that he was not sure if it was proper to issue such an order. Brown has stated that she would make her final decision before August 30, which is just a few days before the rule will be implemented.
FTC’s Stance on Noncompetes
When contacted, FTC spokesman Douglas Farrar asserted that the agency has the responsibility and authority to issue the rule in question.
“We will keep fighting to free hardworking Americans from unlawful noncompetes, which reduce innovation, inhibit economic growth, trap workers, and undermine Americans’ economic liberty,” Farrar said in a statement.
Daryl Joseffer, the chief counsel of the Chambers’ litigation branch, referred to the verdict as “a big win in the Chamber’s fight against government micromanagement of business decisions.”
“The FTC’s blanket ban on noncompetes is an unlawful power grab that defies the agency’s constitutional and statutory authority,” he said.
FTC’s Rule Faces Broader Opposition
The Democratic-controlled FTC banned the noncompete agreements through a 3-2 vote in May this year; the commission and its allies claim that the agreements hamper competition, infringe the U. S antitrust laws, and stagnate worker wages and promotions.
California, Minnesota, Oklahoma, and North Dakota have already banned noncompetes, and at least twelve other states have restricted their usage in some way. The FTC’s rule would be the first one to make noncompetes unlawful on a nationwide scale.
Business coalitions and many Republicans argue that noncompetes are important methods that allow companies to safeguard their ideas, other sensitive information, and investments in talent and training of the human capital.
Ryan and the Chamber filed two lawsuits saying that the FTC had no right to adopt the ban and that Congress only provided the FTC with limited rulemaking powers.
The FTC has maintained that noncompetes are anticompetitive per se because they restrain competition between businesses for employees, and the elimination of such restraints is within the FTC’s core mission to prevent anticompetitive practices.
Brown on Wednesday had opined that the rule was probably unlawful because the FTC had failed to explain the broad, virtually complete prohibition.
“It imposes a one-size-fits-all approach with no end date, which fails to establish a rational connection between the facts found and the choice made,” the judge wrote, as reported by Reuters.
Ongoing Legal Battles
Philadelphia federal court is another place where the FTC is currently being challenged for its rule by a tree-trimming company based in Pennsylvania. A judge has set another hearing for July 10 concerning the company’s application for a temporary restraining order against the rule.