The U.S. Chamber of Commerce has filed a lawsuit against the Federal Trade Commission (FTC), challenging the agency’s ban on noncompete agreements between employers and employees. The lawsuit, filed in the U.S. District Court for the Eastern District of Texas, argues that the FTC’s ban is arbitrary and capricious and exceeds the agency’s legal authority.
The Chamber contends that Congress did not grant the FTC the power to issue substantive regulations regarding unfair methods of competition. Even if the FTC had such authority, the Chamber argues that a nationwide ban on noncompete agreements is a matter for Congress to decide, rather than an administrative agency.
The lawsuit also raises concerns about the retroactive nature of the noncompete ban, alleging that it violates fundamental legal principles and the Administrative Procedure Act.
FTC approved the noncompete ban in a 3-2 vote, with the final rule stipulating that employers violate federal antitrust laws when entering into noncompete agreements with employees. Existing noncompete agreements would become unenforceable under the rule, except for certain agreements involving senior executives.
The lawsuit’s venue in the U.S. District Court for the Eastern District of Texas is significant, as the court has been the site of previous regulatory disputes between the Biden administration and employer groups. Recent rulings from this court have involved challenges to labor and employment regulations issued by federal agencies.