DALLAS (CelebrityAccess) — A federal judge in Texas has blocked a new rule from the Federal Trade Commission (FTC) that bans the use of Non-Compete clauses in employment contracts.
The clauses, which typically ban former employees from joining or launching rival companies, are a common fixture of employment contracts within the live entertainment industry.
According to Reuters, U.S. District Judge Ada Brown in Dallas ruled that the FTC does not have the statutory authority to ban business practices that it deems unfair by adopting broad rules.
Additionally, Judge Brown’s ruling notes that while Congress expressly granted the FTC authority under the Magnuson-Moss Act of 1975 to create substantive rules barring unfair practices, that authority does not extend to unfair methods of competition.
As well, the court concluded that the FTC’s rule was “unreasonably overbroad” and failed to address potential alternatives.
The FTC’s prohibition on non-competes was scheduled to take effect on Sept. 4.
Brown was nominated to the Federal Bench by former President Donald Trump in 2019.
The decision was lauded by Suzanne Clark, President and CEO of the U.S. Chamber of Commerce, a plaintiff in the case.
“This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions,” U.S. Chamber of Commerce President and CEO Suzanne P. Clark said. “A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage. We remain committed to holding the FTC — and all agencies — accountable to the rule of law, ensuring American workers and businesses can thrive.”
A rep for the FTC told Reuters that an appeal of the decision was under consideration.
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