On Wednesday, the U.S. Chamber of Commerce announced that it was challenging the Federal Trade Commission’s (FTC) recent ruling banning noncompete clauses.
The Chamber filed a coalition lawsuit against the FTC after the commission voted to ban the employer practice, saying the FTC’s action was a dangerous precedent or government micromanagement and will harm employees, employers and the economy.
“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,” U.S. Chamber President and CEO Suzanne P. Clark said. “Yet, today, 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.”
Tuesday, the FTC issued a final rule banning noncompetes nationwide. The rule, the commission said, would protect the fundamental freedom of workers to change jobs. The FTC estimated that the final rule would generate more than 8,500 new businesses each year, raise worker wages, lower health care costs and boost innovation.
“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once noncompetes are banned,” FTC Chair Lina M. Khan said. “The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business, or bring a new idea to market.”
Noncompetes contractually prevent workers from taking a new job or starting a new business in their industry. The noncompetes often force workers to stay in a job they want to leave. The FTC estimates that 30 million American workers, nearly one in five, are subject to a noncompete. Under the new rule, existing noncompetes would no longer be enforceable for the vast majority of workers, except for existing noncompetes for senior executives. Employers will be banned from entering into or attempting to enforce any new noncompetes in the future, the commission said.
The Chamber called the ruling a “power grab” and challenged the commissions ability to declare business practices as unfair and illegal.
“If the FTC can regulate noncompete agreements, then they can decide to regulate or even ban any other business practice. All without a vote from Congress,” the Chamber said.