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The US Chamber of Commerce and other trade groups sued the Federal Trade Commission on Wednesday after the regulator voted to ban non-compete agreements.
The coalition, which filed the lawsuit in a federal court in Texas, argued that it would be adversely affected by the ban because it would curb their members’ ability to “protect their confidential information” and “investments in the workforce”.
The group — which also includes the Business Roundtable, Texas Association of Business and Longview Chamber of Commerce — is asking the court to void the rule and prohibit the FTC from enforcing it. The Chamber of Commerce has been a vocal critic of the FTC’s move since it was first proposed in January 2023.
The regulator’s 3-2 vote approving the rule on Tuesday bans most non-compete contracts, which restrict workers from leaving for a competitor, usually for a certain period and in a specific geographic region.
Some critics, including those that filed the lawsuit, contend that the regulator lacks authority, arguing any rule to banish non-competes would have to go through a vote in Congress instead. The FTC pushed back on the group’s argument. “Our legal authority is crystal clear,” FTC spokesperson Douglas Farrar said in a statement.
Congress included language in the legislation backing the FTC’s jurisdiction that bolsters the regulator’s authority to act on non-competes, he added. “Addressing non-competes that curtail Americans’ economic freedom is at the very heart of our mandate, and we look forward to winning in court.”
The legal battle between the regulator and various business groups would most likely play out for months, leaving employers in limbo as the rule makes its way through the US court system.
Another lawsuit emerged even before the coalition of trade groups sued the regulator. Ryan, a tax services firm, filed a lawsuit shortly after the regulator’s vote, arguing that the ban would impose an “extraordinary burden” on businesses.
“Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules,” Suzanne Clark, the president and chief executive of the Chamber of Commerce, said in a statement on Tuesday. “Non-compete agreements are either upheld or dismissed under well-established state laws governing their use.”
Dozens of US states have already imposed some form of limitations on non-competes, but only four have banned them entirely. New York state lawmakers voted to ban the contracts last year, only to be vetoed in December by the state’s Democratic governor, Kathy Hochul, after an uproar from Wall Street groups.
The regulator estimates that 30mn people in the US workforce are affected by such contracts, which have spread beyond high-paying executives to also cover hourly workers such as bartenders and security guards. For years, Americans have been hit with steep fines or have been dragged into expensive legal battles as a consequence of breaching their contracts.
The ban is also affecting employment disputes in court. Pamela Abbate Dattilo, a lawyer in Minneapolis, said a judge cancelled a hearing for Thursday in one of her cases because they wanted to know more about the ban.
“It’s going to have a very real impact on the ways companies behave and the expectations of individuals” regardless of whether it was legally put into effect, she said.
