U.S. Chamber of Commerce, business groups sue FTC over ban on noncompete clauses

The

U.S.
Chamber
of
Commerce
and
several
other
business
groups
on
Wednesday
sued
the

Federal
Trade
Commission
in
Texas
federal
court
over
the
commission’s
vote
to
ban

noncompete
clauses,
which
are
used
to
block
employees
from
leaving
to
work
for
competitors
in
the
same
industry.

On
Tuesday,
the

FTC
voted
to
enact
the
ban
on
the
basis
that
noncompete
clauses
stifle
the
efficiency
of
the
labor
market,
hinder
competition
and
can
lead
to
higher
prices
for
consumers.
Noncompete
agreements
often
prevent
workers
from
pursuing
other
jobs
in
their
industry,
and
the
better
pay
those
jobs
would
offer.

The
ban
is
set
to
take
effect
120
days
after
the
rule
is
officially
published
in
the
Federal
Register.

In
the
meantime,
the
business
groups
are
seeking
to
block
the
ban,
claiming
the
FTC
does
not
have
the
authority
to
implement
the
rule,
and
the
rule
itself
is
too
wide
in
scope.

“The
sheer
economic
and
political
significance
of
a
nationwide
noncompete
ban
demonstrates
that
this
is
a
question
for
Congress
to
decide,
rather
than
an
agency,”
the
U.S.
Chamber,
which
represents
roughly
3
million
companies,
wrote
in
the

lawsuit
filed
in
the
Eastern
District
of
Texas.

The
business
groups
claimed
that
the
FTC’s
ban, “breaks
with
centuries
of
state
and
federal
law.”
In
addition
to
the
Chamber
of
Commerce,
the
Business
Roundtable,
Texas
Association
of
Business
and
Longview
Chamber
of
Commerce
are
all
plaintiffs
in
the
suit.

They
allege
that
noncompete
agreements
are
essential
to
protecting
internal
company
secrets
and
proprietary
information.
The
FTC
suggested
that
instead
of
relying
on
noncompete
clauses,
companies
should
look
to
other
safeguards
of
information,
like
nondisclosure
agreements.

The
FTC
rejected
the
allegation
that
it
is
overstepping
its
legal
bounds.

“Our
legal
authority
is
crystal
clear,”
FTC
spokesperson
Douglas
Farrar
told
CNBC
in
a
statement. “Addressing
noncompetes
that
curtail
Americans’
economic
freedom
is
at
the
very
heart
of
our
mandate,
and
we
look
forward
to
winning
in
court.”

The
commission
estimates
that
around
30
million
U.S.
employees,
or
18%
of
the
American
workforce,
are
currently
subject
to
a
noncompete
clause.

The
ban
would
not
only
prohibit
the
use
of
any
future
noncompetes
but
it
would
also
require
companies
to
scrap
existing
ones
for
all
workers,
except
some
senior
executives.
The
business
groups
contend
that
this
latter
provision
is “impermissibly
retroactive,”
by
voiding
previously
agreed-upon
contracts.

“Businesses
that
bargained
for
noncompetes
will
lose
the
protections
of
those
agreements—even
if
they
already
held
up
their
end
of
the
bargain,”
the
business
groups
wrote.

The
business
groups
also
maintain
that
not
all
noncompete
clauses
are
created
equal,
and
many “pose
no
threat
to
competition”
in
the
broader
market.

The
U.S.
Chamber
has
been

threatening
to
sue
the
FTC
over
this
rule
since
the
commission
first
proposed
it
in
January
2023.
Since
then,
the
FTC
has
received
about
26,000
comments,
most
of
which
the
agency
said
were
positive,
though
the
Chamber
claims
the
FTC
did
not
address
many
of
the
criticisms
fielded
by
businesses.

The
Chamber’s
legal
threats
over
the
past
year
also
ran
up
against
challenges
on
Capitol
Hill,
where
there
is
bipartisan
support
for
expanding
current
noncompete
regulations
into
a
full
ban.