The FTC’s Ban on Noncompetes Sparks Displeasure from Business Lobby

Business groups representing employers have taken legal action against the Federal Trade Commission’s new ban on noncompete agreements, filing a lawsuit in federal court in Texas. The U.S. Chamber of Commerce, along with the Business Roundtable and the Texas Association of Business, argue that the FTC has exceeded its legal authority in implementing the rule.

Noncompete agreements restrict employees from taking jobs at competing businesses for a certain period, essentially trapping them in their current positions. The ban on noncompetes would shift bargaining power to workers, compelling employers to enhance wages and working conditions to retain talent.

The FTC’s rule, finalized in a 3-2 vote, is set to take effect 120 days after appearing in the Federal Register. The Chamber may seek an injunction to halt the rule while the case is litigated. The lawsuit was filed in Texas’ Eastern District, known for its conservative leanings and aversion to regulations.

Critics of noncompete agreements, including President Joe Biden, argue that they hinder workers from pursuing better opportunities and stifle innovation. The FTC’s rule would invalidate existing noncompetes, except for those involving senior executives, and prohibit new agreements.

While the ban garnered public support, opponents primarily challenge the FTC’s authority rather than defending noncompetes. The Chamber contends that noncompetes are essential for protecting employer investments in employee training. The outcome of this legal battle could have significant implications for the future of noncompete agreements in the workplace.