The U.S. District Court for the Northern District of Texas blocked the Federal Trade Commission's (FTC) final rule prohibiting non-competition agreements with workers in an Aug. 20 ruling.

Judge Ada Brown decision will prevent the rule from going to effect as expected Sept. 4.

The lead plaintiff in the case, Ryan LLC., a tax plaintiff in the case, celebrated the decision.

“Today we prevail in protecting the very foundation of innovation that drives our economy from the overreach of the FTC in its misguided mission to invalidate millions of employment contracts,” said Ryan Chairman and CEO G. Brint Ryan in a release. “Non-competes serve as a cornerstone of mutual trust between employer and employee. As a champion for our clients and business owners nationwide, Ryan stands proud in the role we’ve played to protect businesses’ intellectual property and ongoing investment in employee training and skill development.”

Ryan’s lawsuit, filed within the hour after the FTC promulgated its ban on non-competes, challenged the FTC’s authority to issue such a rule, which imposes an extraordinary burden on business owners seeking to protect their IP and to retain talent within the professional services industry. The U.S. Chamber of Commerce, Business Round Table, Texas Association of Business, and Longview Chamber of Commerce joined the case shortly after it was filed, along with a vast array of organizations that filed briefs supporting Ryan’s position.

In her ruling, Judge Brown concluded that “the text and the structure of the FTC Act reveal the FTC lacks substantive rulemaking authority with respect to unfair methods of competition” and that “the Rule is arbitrary and capricious because it is unreasonably overbroad without a reasonable explanation.” She emphasized “the role of an administrative agency is to do as told by Congress, not to do what the agency think[s] it should do.”

The Chamber’s CEO Suzanne P. Clark issued the following statement:  

“This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions. 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.”

Steve Levine, chief legal and compliance officer, for Ignite Consulting Partners, offered a quick take on the ruling.

“I think the judge had serious concerns about the FTC overstepping its bounds, and I'm curious to see the next steps taken by the FTC,” he said.

On April 23, the FTC issued its non-compete rule, stating it will “promote competition by banning noncompetes nationwide, protecting the fundamental freedom of workers to change jobs, increasing innovation, and fostering new business formation.”

The commission voted to approve the rule after receiving more than 26,000 comments.

NIADA also opposed the rule when it was first proposed in February.

Jeremy Beck, NIADA vice president of dealer development, wrote then “As we stated in that letter, we believe the FTC lacks constitutional or statutory authority to issue such a rule. We are disappointed that the FTC has issued their final rule, the non-compete clause rule, effectively invalidating most noncompetes currently in place and prohibiting the use of them in the future. We continue to advocate for our members by opposing this rule and encourage members of the U.S. Congress to assert their constitutional authority.”