Business groups led by the U.S. Chamber of Commerce sued the Federal Trade Commission (FTC), challenging its decision to ban noncompete agreements.
The FTC voted 3-2 Tuesday to pass the rule blocking new noncompete agreements. The rule also requires employers to throw out existing noncompete agreements and notify current and former workers they won’t be enforced, though the final rule carved out an exemption for senior executives, who still may be subject to the agreement.
The agency says the noncompete ban will allow 30 million people, around 18 percent of the U.S. workforce, to change jobs within their industry and earn more money.
But business groups say noncompete agreements are necessary to protect intellectual property and accuse the FTC of regulatory overreach.
“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 bargain for higher pay,” the plaintiffs wrote in the lawsuit.
“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 lawsuit adds.
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 that take aim at 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 whether these cases get resolved before the 2024 presidential election remains to be seen, they do draw a stark comparison between President Biden and the presumptive Republican nominee, former President Trump.
“Workers ought to have the right to choose who they want to work for,” Biden posted on X after the FTC passed the noncompete ban.
But Biden is still battling perceptions that his predecessor would handle the economy better than him. According to a CBS News poll of 2,159 Americans released last month, just 38 percent rated the economy as good under Biden, while 65 percent said it was good under Trump.
While the move to ban noncompete agreements was celebrated 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.
“Yet, [Tuesday], three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy.”
After filing the lawsuit, Business Roundtable CEO Joshua Bolten called the noncompete ban “misguided and far beyond the agency’s statutory authority.”
“When appropriately used, reasonable noncompete agreements protect essential investments in employees, R&D and innovation,” Bolten said. “By banning most noncompete agreements, the FTC’s rule will disincentivize investments in workers and make it harder for companies to compete globally.”
Updated at 11:39 a.m. EDT.