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The U.S. Chamber of Commerce and other trade groups sued the Federal Trade Commission on Wednesday after the regulator voted to ban non-compete agreements.
The coalition, which filed the lawsuit in federal court in Texas, argued that it would be harmed by the ban because it would limit its members’ ability to “protect their confidential information” and “invest in the workforce.”
The group — which also includes the Business Roundtable, the Texas Association of Business and the Longview Chamber of Commerce — is asking the court to strike down the rule and ban the FTC from enforcing it. The Chamber of Commerce has been vocal in its criticism of the FTC’s move since it was first proposed in January 2023.
The regulator’s 3-2 vote to approve the rule Tuesday bans most noncompete agreements that prevent workers from joining a competitor, usually for a specific period of time and in a specific geographic region.
Some critics, including those who filed the lawsuit, claim the regulator lacks authority and argue that any rule banning non-compete agreements would instead have to be subject to a vote in Congress. The FTC rejected the group’s argument. “Our legal authority is crystal clear,” FTC spokesman Douglas Farrar said in a statement.
Congress included language in the legislation that supports the FTC’s jurisdiction and strengthens the regulator’s authority to act on non-compete agreements, he added. “Fighting non-compete agreements that restrict Americans’ economic freedom is at the heart of our mandate, and we look forward to winning in court.”
The legal battle between the regulator and various business groups would most likely drag on for months, leaving employers in limbo while the rule makes its way through the U.S. court system.
Even before the coalition of trade groups sued the regulator, another lawsuit arose. Ryan, a tax services firm, filed a lawsuit shortly after the regulator’s vote, arguing that the ban would impose an “extraordinary burden” on businesses.
“Since its founding over 100 years ago, the FTC has never been given the constitutional and statutory authority to issue its own competition rules,” Suzanne Clark, president and CEO of the Chamber of Commerce, said in a statement Tuesday. “Non-compete agreements are either upheld or dismissed in accordance with established state laws governing their use.”
Dozens of US states have already restricted non-compete agreements in some form, but only four have banned them entirely. New York state lawmakers voted to ban the contracts last year, but the state’s Democratic governor, Kathy Hochul, vetoed them in December after an uproar from Wall Street groups.
The regulator estimates that 30 million people in the U.S. workforce are affected by such contracts, which have expanded beyond high-paid executives to include hourly workers such as bartenders and security guards. For years, Americans have been fined heavily or embroiled in costly litigation for breach of contract.
The ban also affects employment disputes in court. Pamela Abbate Dattilo, a lawyer in Minneapolis, said a judge canceled a hearing in one of her cases on Thursday because they wanted to know more about the ban.
“It will have a very real impact on corporate behavior and individual expectations,” regardless of whether it is enacted into law, she said.