The Federal Trade Commission (FTC) will not be able to enforce a ban on non-compete agreements between workers and employers following an unfavorable ruling issued by a federal judge in Texas.
On Tuesday, U.S. District Judge Ada Brown said the FTC lacks the authority to ban non-compete agreements, which are common contracts between workers and employees in the media and entertainment industries, among other business sectors.
Brown issued a temporary injunction last month that prevented the FTC’s rule from taking effect while the court considered arguments on both sides of the matter. The order on Tuesday makes the injunction permanent, barring a successful appeal to a higher court.
In her order, Brown said the FTC did not present enough evidence to support the rule, which she called “broad.” Because the FTC apparently did not consider a narrowly-crafted rule, Brown said the agency’s ban on non-compete agreements was “arbitrary and capricious.”
The FTC had passed the ban on non-competes along party lines, voting 3-2 to approve the measure earlier this year. The agency and its supporters said non-compete agreements were examples of anticompetitive behavior, likely violated antitrust laws and suppressed the ability of workers to negotiate better pay and other benefits on the idea that they could switch jobs.
Around 30 million workers are covered by non-compete agreements, according to the FTC. That amounts to nearly 20 percent of the American workforce, the agency said.
Non-compete agreements typically restrict a worker from engaging in certain behaviors while they are employed by a company, to include taking on outside work, even when it may not directly compete with their primary job. The agreements also usually include a stipulation that an employee will not work for a competitor for a specific amount of time once their employment ends.
Supporters of non-compete agreements say the terms help ensure worker loyalty and prevent confidential business information from leaking to competitors.
