US Chamber of Commerce sues FTC over non-compete ban
Business advocacy group challenges commission’s authority and the legitimacy of its new rule banning non-compete agreements | Rule change sets a “dangerous precedent for government micromanagement” | Lawsuit argues FTC's actions will negatively impact businesses and employees.
The US Chamber of Commerce has sued the Federal Trade Commission (FTC) and its chair, Lina Khan, over a nationwide ban on worker non-compete agreements.
The controversy stemmed from a rule proposed by the FTC in January 2023, aiming to ban worker noncompete agreements across the US. Yesterday, April 23, 2024, the FTC finalised the rule despite significant opposition from various sectors.
The plaintiffs included the US Chamber of Commerce, along with a coalition of business organisations such as Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce.
The suit argued the FTC’s actions exceed its authority and will have far-reaching negative consequences for businesses and employees.
The complaint, filed in the US District Court for the Eastern District of Texas, challenged the FTC's authority to implement the ban and asserted that the commission's action violates both the Administrative Procedure Act and the Declaratory Judgment Act.
The chamber said the FTC’s action set a “dangerous precedent for government micromanagement” and will harm employees, employers, and the economy.
It has pledged to continue “fighting back against government micromanagement”.
“The FTC contends that by using regulation they can simply declare common business practices to be 'unfair methods of competition' and thus illegal. This is despite the fact that noncompete agreements have been around longer than the 110-year-old FTC and until now no one has suggested that they are illegal.
“Challenging the FTC in court is about more than noncompete agreements. It is about stopping an astonishing power grab by the FTC.
“If the FTC can regulate noncompete agreements, then they can decide to regulate or even ban any other business practice. All without a vote from Congress,” concluded the chamber.
US Chamber of Commerce: Non-competes ‘are not’ categorically unfair
According to the chamber, the rule not only prohibits new noncompete agreements but also "retroactively invalidates tens of millions of existing agreements".
This, they argue, will force businesses to resort to less effective alternatives to protect their confidential information, such as nondisclosure agreements and trade-secret lawsuits.
The lawsuit challenged the FTC's authority to issue regulations prohibiting "unfair methods of competition," arguing that this authority was not granted by Congress.
Additionally, the chamber argued that even if the FTC had such authority, the rule would still be unlawful because noncompete agreements are not “categorically unfair” under section 5 of the FTC Act.
The rule violates established legal principles and the Fifth Amendment, according to the suit.
Under the rule, businesses would be required to identify and notify employees of the invalidity of existing noncompete agreements, face legal costs, and resort to less effective means of protecting their investments.
Workers, on the other hand, would lose important training opportunities and bargaining power.
The chamber sought declaratory and injunctive relief to stop the implementation of the FTC's rule. It argued that if allowed to proceed, the rule would represent an unprecedented and unlawful exercise of bureaucratic power.
The FTC has not yet commented on the lawsuit.
Jeffrey Wall and Judson Littleton from Sullivan & Cromwell, and Michael Jones and Shaun Hassett from Potter Minton served as outside counsel for the chamber.
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