Employee non-compete ban challenged in court by American business groups

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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 affected by the ban because it would limit its members’ ability to “protect their confidential information” and “investments in 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 enjoin the FTC from enforcing it. The Chamber of Commerce has sharply criticized the FTC’s decision since it was first proposed in January 2023.

The regulator’s 3-2 vote in favor of the rule Tuesday prohibits most noncompete contracts, which prevent workers from leaving for a competitor, usually for a certain period of time and in a specific geographic region.

Some critics, including those who filed the suit, say the regulator lacks authority, arguing that any rules to ban non-competes should instead go through 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 in the legislation provisions strengthening the FTC’s jurisdiction and strengthening the regulator’s authority to act in non-competition cases, he added. “Fighting non-competes that restrict Americans’ economic freedom is at the very heart of our mandate, and we look forward to winning in court.”

The legal battle between the regulator and various business groups would likely last for months, leaving employers in limbo as the rule works its way through the U.S. court system.

Another lawsuit took place even before the coalition of business groups sued the regulator. 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 inception more than 100 years ago, the FTC has never been given constitutional and statutory authority to write its own competition rules,” Suzanne Clark, president and CEO of the Chamber of Commerce, said Tuesday. “Non-compete agreements are either upheld or rejected under well-established state laws governing their use.”

Dozens of U.S. states have already imposed some form of noncompete limitations, but only four have banned them entirely. New York state lawmakers voted to ban such contracts last year, but the state’s Democratic governor, Kathy Hochul, vetoed it in December after a public outcry. Wall Street groups.

The regulator estimates that 30 million people in the U.S. workforce are affected by such contracts, which extend beyond well-paid executives to also cover hourly workers such as bartenders and security guards. For years, Americans have been hit with hefty fines or dragged into costly legal battles for violating their contracts.

The ban also affects labor disputes in court. Pamela Abbate Dattilo, a lawyer in Minneapolis, said a judge canceled a hearing Thursday in one of her cases because he wanted to know more about the ban.

“This is going to have a very real impact on how businesses behave and what people expect,” regardless of whether the measure is legally enforced, she said.

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