A federal judge in Texas struck down a US Federal Trade Commission rule that would have prevented employers from enforcing most existing noncompete clauses and requiring new workers to sign noncompete clauses. The ban was scheduled to go into effect nationwide September 4.

US District Judge Ada Brown wrote in her ruling that the federal agency exceeded its statutory authority when it approved the ban and the noncompete rule is “arbitrary and capricious.”

“The court concludes that the FTC lacks statutory authority to promulgate the noncompete rule, and that the rule is arbitrary and capricious. Thus, the FTC’s promulgation of the rule is an unlawful agency action,” she wrote.

The FTC issued the final rule April 23, which would have banned for-profit employers from entering into new noncompetes to anyone. It would have also made most existing agreements unenforceable after the effective date. Specifically, existing noncompetes would remain in force for those senior executives earning more than $151,164 annually and who are in policy-making positions.

For now, employers can now continue to use noncompete agreements, but it is unclear whether or not the FTC will appeal, and if so, seek an emergency order to enact the rule while the appeal plays out.

“If you are a practice owner and have noncompete clauses in employment agreements with associates, hygienists or other staff, or if you are an employee dentist currently subject to a noncompete clause, you may wish to consult with an attorney in your geographic area experienced in these matters,” ADA President Linda J. Edgar, DDS, said.

Members’ state or local bar associations may have a lawyer referral service. The American Bar Association’s directory of lawyer referral services can be found here.

A free downloadable resource for members, titled A Dentist’s Guide to Selecting a Lawyer, is available here.