A Federal district court in Texas on Tuesday enjoined the Federal Trade Commission’s final rule to ban the use of noncompete clauses in employee contracts, preventing the rule from being enforced or taking effect. Prior to the judge’s ruling, the rule had been scheduled to take effect on Sept. 4 with respect to nearly all employers.
The rule would have made it illegal for an employer to enter into a noncompete agreement with a worker, maintain a noncompete with a worker or tell workers they are subject to a noncompete. Noncompete agreements with senior executives finalized before the rule’s effective date of Sept. 4 would have remained in force under the rule.
While the FTC does not have regulatory authority over banks, it does have authority over bank affiliates. The FTC also claims authority over bank holding companies.
In the ruling, the court concluded that the FTC exceeded its statutory authority in implementing the rule and that the rule is arbitrary and capricious. Previously, the court had enjoined the rule against the named plaintiffs in the lawsuit only.
