Business Groups File Lawsuit to Prevent F.T.C. Ban on Noncompete Clauses

The U.S. Chamber of Commerce has followed through on its promise to sue the Federal Trade Commission (F.T.C.) over a ban on agreements that restrict workers from leaving a company for a rival. The lawsuit, filed in a U.S. District Court in Texas, argues that the F.T.C. exceeded its authority in issuing rules that define unlawful methods of competition.

Joined by three other business groups, including the Business Roundtable and the Texas Association of Business, the Chamber of Commerce challenged the F.T.C.’s final rule to ban noncompete agreements. The rule, approved in a 3-to-2 vote, would void existing noncompetes and prevent companies from imposing new ones, except for executives in “policy-making positions” making over $151,164 a year.

The F.T.C. and worker advocates argue that noncompete agreements suppress competition for labor and drive down wages, while companies use them to protect trade secrets and investments in employee training. The legal battle over the rule hinges on whether the F.T.C. has the authority to make such broad decisions.

Former F.T.C. chair William Kovacic expressed skepticism about the agency’s legal footing, warning that the challenge could be an uphill battle. The F.T.C. cited a 1973 court decision to support its rulemaking authority, but critics question the agency’s interpretation of its powers.

As the lawsuit unfolds, the future of noncompete agreements and their impact on the labor market remain uncertain, with both sides gearing up for a contentious legal showdown.