A federal district court in Texas has set aside a recently passed rule issued by the Federal Trade Commission (FTC) which made it illegal for employers to make employees sign non-compete agreements. These agreements were prohibited to make it easier for employees to obtain alternative work or start their own businesses. As a result of this ruling, the FTC’s rule cannot be enforced, but it will remain on the books until the case is fully litigated.
What is a Non-Compete Agreement?
Non-compete agreements are a type of contract that limits the ability of a worker to compete against their current employer once they leave their position. In effect, they are prevented from working in the same industry and market as their employer for a certain amount of time after quitting or being terminated. This makes it much harder for employees to take positions with competing businesses, or for them to start up new businesses of their own.
What Did the FTC Rule Do?
The FTC rule, which was originally passed in April, made it illegal for employers to make their employees sign non-compete agreements. This was intended to stop what the FTC described as anti-competitive business practices, which limited employee opportunities for advancement. This, in turn, kept employees in bad jobs longer than they would have if they were more free to find alternative employment elsewhere.
Why Was it Blocked?
According to the court ruling, the FTC’s rule was blocked from being enforced because the FTC did not have the authority to issue the rule in the first place. The judge stated that the FTC exceeded the legal authority it had under the Administrative Procedures Act to issue the rule. Moreover, she said that the agency had not given adequate justification for banning nearly all non-compete agreements, rather than a more narrow rule that targeted specific types of abusive contracts.
What Happens Now?
Thanks to this court ruling, the ban on non-compete agreements will not be enforced while litigation continues. This means that anyone currently bound by these agreements will need to comply with them. However, it potentially leaves the rule up in the air, as the case goes through the process of appeals.
Steven Mitchell Sack, the Employee’s Lawyer, is a New York employment lawyer with more than 44 years’ experience handling the many aspects of employment law. His new book, “Fired!: Protect Your Rights & FIGHT BACK If You’re Terminated, Laid Off, Downsized, Restructured, Forced to Resign or Quit,” is available in hardback, and contains valuable advice on dealing with employment and labor law issues. To purchase the book, feel free to contact Steven Sack at 917-371-8000 or visit the website at legalstratpub.com. To inquire about a legal matter, please feel free to contact attorney Steven Sack at 917-371-8000 or stevensackatty@hotmail.com.
