Topline
The U.S. Chamber of Commerce and other business groups are suing the Federal Trade Commission, according to multiple outlets, accusing the regulator of overstepping its authority with its new rule banning noncompetes—a clause prohibiting employees of a business from engaging in a similar profession or trade competitively against the employer.
Key Facts
The chamber’s lawsuit, filed in Texas federal court Wednesday, says the FTC lacks the power needed to issue its Tuesday rule banning noncompete agreements, which apply to an estimated 30 million workers in the U.S., according to FTC data.
The chamber is asking the court to overturn the new rule and said Tuesday, prior to its filing, the ban on noncompetes would undermine American businesses’ ability to remain competitive and set a precedent for government micromanagement of business.
The chamber argued in its suit the FTC’s “astounding assertion of power breaks with centuries of state and federal law” and depends on “novel claims of authority by the Commission,” The Washington Post reported.
The FTC didn’t immediately respond to Forbes’ request for comment, though FTC spokesman Douglas Farrar told the Post the FTC’s authority to issue the ban “has repeatedly been upheld by courts and reaffirmed by Congress.”
Big Number
More than 8,500. That’s how many businesses will be created each year with the introduction of the noncompete ban, the FTC said in a statement.
Key Background
The FTC voted 3-2 to pass the rule banning noncompetes. The commission said Tuesday existing noncompetes can remain in effect for “senior executives” earning more than $151,163 annually who hold policy-making positions. The rule will become law 120 days after it is published in the National Register, assuming it is not held up in litigation. Republican commissioners argued the FTC didn’t have the authority to pass the rule, though Lina Khan, the commission’s Democratic chair, argued the FTC Act “clearly gives the agency the authority to address unfair methods of competition.” The FTC said Tuesday existing noncompetes for workers who are not senior executives would not have to be rescinded, but also won’t be enforceable. The initial view of the FTC’s rule is that it will apply to “a limited set of employees,” Robert Milligan, Los Angeles-based partner at legal advisory firm Seyfarth Shaw, told Forbes.
Further Reading
FTC Bans Noncompete Clauses, Freeing Workers To Pursue New Jobs And Start Businesses (Forbes)
The FTC Just Banned Most Noncompete Agreements. Business Groups Vow To Sue. (Forbes)
