A federal judge in Texas on Tuesday blocked the implementation of a U.S. Federal Trade Commission rule that would have made it illegal for employees to sign agreements promising not to join competitors of their companies or launch competing businesses.
U.S. District Judge Ada Brown in Dallas denied the Federal Trade Commission (FTC), which is in charge of upholding federal antitrust laws, the authority to enact broad regulations that would forbid actions that it views as unfair tactics of competition.
The nation's largest business group, the U.S. Chamber of Commerce, and tax service provider Ryan filed a request to invalidate the regulation entirely. Brown temporarily suspended it in July while she considered it. The rule's commencement date was set for September 4.
In her decision, Brown stated that even if the FTC possessed the authority to enact the rule, the agency had not provided sufficient justification for outlawing nearly all noncompete 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," Brown said.
Speaking on behalf of the agency, Victoria Graham of the FTC stated that it was unhappy with the decision and is "seriously considering a potential appeal."
A request for comment from the Chamber of Commerce was not immediately answered.