Chamber of Commerce sues FTC to ban noncompete clauses | Wilnesh News

The U.S. Chamber of Commerce and several other business groups sued the Federal Trade Commission in federal court in Texas on Wednesday over its vote to ban noncompete clauses, which are used to prevent employees from leaving to work for competitors in the same industry.

Tuesday, Federal Trade Commission The rationale for voting to pass the ban was that non-compete clauses would stifle labor market efficiency, impede competition, and potentially lead to higher prices for consumers. Non-compete agreements often prevent workers from taking other jobs in the industry and the higher salaries those jobs can offer.

The ban will take effect 120 days after the rule is officially published in the Federal Register.

Meanwhile, business groups are seeking to block the ban, claiming the FTC has no authority to enforce the rule and that the rule itself is too broad.

The U.S. Chamber of Commerce, which represents about 3 million companies, said in a statement that “the purely economic and political significance of nationwide non-compete bans suggests that this is a matter for Congress, not one agency, to decide.” litigation Litigation was filed in the Eastern District of Texas.

The business groups claim the FTC ban “violates centuries of state and federal law.” In addition to the chamber, the Business Roundtable, the Texas Business Association and the Longview Chamber of Commerce are among the plaintiffs in the lawsuit.

They claim that non-compete agreements are critical to protecting a company’s internal secrets and proprietary information. The FTC recommends that companies should not rely on noncompete clauses and instead seek other information protection measures, such as confidentiality agreements.

The FTC dismissed the charge that it exceeded legal boundaries.

“Our legal authority is clear,” FTC spokesman Douglas Farrar told CNBC in a statement. “Addressing non-competes that restrict Americans’ economic freedom is core to our mission, and we Looking forward to winning in court.”

The Commission estimates that approximately 30 million U.S. employees, or 18% of the U.S. workforce, are currently subject to noncompete clauses.

The injunction not only prohibits any future use of non-competes but also requires the company to eliminate existing non-competes for all employees, with the exception of some senior executives. Business groups argued that the latter clause had “impermissible retroactive effect” and would invalidate previously agreed contracts.

“Businesses that bargain into noncompete agreements will lose the protections of those agreements — even if they have fulfilled their commitments,” the business groups wrote.

The business groups also insisted that not all non-compete clauses were created equal and that many “posed no threat to competition” in the wider market.

The U.S. Chamber of Commerce has threatened to sue the FTC over the rule since it first proposed it in January 2023. The FTC did.

The chamber’s legal threats over the past year have also been met with challenges on Capitol Hill, with bipartisan support for expanding existing noncompete regulations into a blanket ban.