Business groups, led by the U.S. Chamber of Commerce, sued the Federal Trade Commission (FTC) in an effort to oppose its decision to prohibit noncompete agreements.
The FTC voted 3-2 Tuesday to pass the rule preventing new noncompete agreements. The rule also demands that employers discard existing noncompete agreements and inform current and former workers that these will not be enforced. The final rule does make an exception for senior executives, who may still be subject to the agreement.
The agency states that the noncompete ban will allow 30 million individuals, approximately 18 percent of the U.S. workforce, to switch jobs within their industry and earn higher salaries.
However, business groups argue that noncompete agreements are essential for safeguarding intellectual property and accuse the FTC of exceeding its regulatory powers.
The plaintiffs stated in the lawsuit that “These agreements benefit employers and workers alike—the employer protects its workforce investments and sensitive information, and the worker benefits from increased training, access to more information, and an opportunity to negotiate for higher pay.
The lawsuit adds, “Although some Members of Congress have recently taken an interest in the issue and proposed legislation that would establish national rules for noncompete agreements, those proposals have never received a Committee vote, let alone a vote from either House of Congress. Without such authorizing legislation, federal agencies have not previously sought to play a role in regulating noncompete agreements on a nationwide basis.
The Chamber, Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce filed the lawsuit against the FTC in the U.S. District Court for the Eastern District of Texas.
The new rule was supposed to go into effect in 120 days, but legal challenges will extend that timeline.
The Chamber has been at the forefront of legal challenges to Biden administration policies targeting big business.
Last month, the Chamber sued the Consumer Financial Protection Bureau to block a new rule that would cap credit card late fees levied by the largest issuers at $8, a fraction of the average $32 late fee. The pro-business lobbying giant also accused the bureau of overstepping its authority when it issued the rule.
While it remains to be seen whether these cases are resolved before the 2024 presidential election, they highlight a clear contrast between President Biden and the presumed Republican nominee, former President Trump.
“Workers ought to have the right to choose who they want to work for,” Biden stated after the FTC passed the noncompete ban.
However, Biden continues to face challenges in people's perceptions that his predecessor would manage the economy better than him. According to a CBS News poll of 2,159 Americans released last month, only 38 percent rated the economy as good under Biden, while 65 percent said it was good under Trump.
While the decision to ban noncompete agreements was welcomed by many workers and labor rights advocates, it angered major players in the business community.
“Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules. Noncompete agreements are either upheld or dismissed under well-established state laws governing their use,” said Chamber President and CEO Suzanne Clark.
“However, today, three commissioners who were not elected have unilaterally determined that they have the power to decide what constitutes a valid business decision by moving to prohibit noncompete agreements in all industries.”
After initiating the lawsuit, Business Roundtable CEO Joshua Bolten criticized the noncompete ban as “misguided and exceeding the agency’s legal authority.”
“When used appropriately, reasonable noncompete agreements safeguard crucial investments in employees, research and development, and innovation,” Bolten stated. “By prohibiting most noncompete agreements, the FTC’s rule will discourage investments in workers and make it more difficult for companies to compete on a global scale.”
Updated at 11:39 a.m. EDT.
