The FTC voted to ban noncompete agreements earlier this week in a 3-2 vote, and the U.S. Chamber of Commerce, along with other business groups, quickly filed lawsuits to block the new rule.
According to The Wall Street Journal, the U.S. Chamber of Commerce challenged the regulation in federal court in East Texas, while tax firm Ryan LLC filed its lawsuit in Dallas federal court.
The Business Roundtable, which represents chief executive officers of some of the country’s biggest employers, also joined the suit.
“It’s one of the most outrageous examples of government overreach that I have seen,” Brint Ryan, CEO of Ryan LLC, said in an interview. “It’s such an aggressive position.”
The tax services firm said that noncompetes “protect the firm’s confidential information and the strategies that Ryan’s employees develop, the company said in its lawsuit. They also promote investments in training,” according to the Wall Street Journal.
Noncompete agreements stop workers from taking positions with competitors for a period of time after they leave a job. The new rule would make them void for everyone except senior executives, and “employers under the rule could not enforce other existing noncompete agreements and would not be able to enter into new noncompete agreements with senior executives in the future,” reported NACS Daily.
The Chamber of Commerce called the rule “unnecessary, unlawful and a blatant power grab.”
“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” wrote Suzanne P. Clark, president and CEO of the U.S. Chamber, in a statement.
Douglas Farrar, an FTC spokesman, said in a statement that Congress empowered the agency to prevent “unfair methods of competition,” which it believes includes noncompete agreements, reported the New York Times. The FTC also posits that noncompete clauses hamper competition for labor and result in lower pay and benefits for employees.
In April 2023, NACS; NATSO, Representing America’s Travel Plazas and Truckstops; and SIGMA: America’s Leading Fuel Marketers, released a letter the associations sent to the FTC opposing the FTC’s proposed rule banning non-compete agreements. The associations did not oppose banning noncompete agreements for many categories of lower-level employees, but took the position that employers should have the ability to enter into noncompete agreements with senior executives and those with specialized knowledge of trade secrets and key strategies.
The associations stated that they view the proposed rule as undermining rather than protecting competition, and that non-compete agreements are particularly important for small businesses that may be at risk of having key executives, employees or partners lured away by larger firms to gain proprietary information and undermine competition.