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UPDATE 8/21: US District Judge Ada Brown struck down the FTC's noncompete rule this week, arguing that the FTC did not prove why "such a sweeping prohibition" on noncompetes is necessary. She suggests the agency should have focused on "specific, harmful non-competes," Reuters reports.
The US Chamber of Commerce, which sued over the rules, says the decision is "a significant win in the Chamber’s fight against government micromanagement of business decisions."
The FTC tells Reuters it's considering an appeal.
Original Story 7/4:
A Texas court has postponed the Federal Trade Commission's ban on noncompete agreements, siding with plaintiffs who claim the move is an "unlawful power grab."
Noncompete clauses are used in various industries, particularly the tech world, to prevent workers from jumping ship to a rival or starting their own businesses and potentially taking trade secrets with them. However, the agreements mean workers who leave a company are often forced to work outside their field until their noncompete expires, usually for less money.
The US Chamber of Commerce and a Texas-based tax firm sued, and a court granted an injunction this week; it will decide on the case on or before Aug. 30, Bloomberg reports.
"Noncompete agreements can serve vital procompetitive business and individual interests—like protecting investments in research and development, promoting workforce training, and reducing free-riding—that cannot be adequately protected through other mechanisms such as trade-secret suits or nondisclosure agreements," according to the Chamber of Commerce, which says "the FTC’s ban on noncompete agreements is another attempt at aggressive regulatory proliferation."
When the ban was announced, FTC Chair Lina M. Khan argued that "noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned."
The FTC voted 3-2 to issue the rule; Democratic appointees Alvaro Bedoya, Khan, and Rebecca Kelly Slaughter voted yes, while Republican appointees Andrew N. Ferguson and Melissa Holyoak voted no.
The ban did not impact workers with "policy-making authority" who make more than $151,164. It also didn't require contracts to be rewritten; it merely said that the noncompete portion of them was now unenforceable.