Less than 24 hours after the Federal Trade Commission (FTC) issued a final rule banning employers from using noncompete agreements in the United States, legal challenges have emerged. The US Chamber of Commerce and the Business Roundtable filed a lawsuit against the agency in federal court in the Eastern District of Texas. Another lawsuit was filed by business tax services firm Ryan in the Northern District of Texas, with expectations of more to follow in the coming weeks.
The legal dispute centers on the argument that the FTC overstepped its administrative authority by outlawing what it considers 'unfair methods of competition' without a clear legislative mandate from Congress. The US Chamber of Commerce contends that the FTC's regulation of noncompete agreements sets a precedent that could lead to the regulation or banning of other business practices without congressional approval.
The plaintiffs, including the Longview Chamber of Commerce, are seeking a stay to prevent the rule from taking effect, as well as a preliminary injunction to halt enforcement while the case is litigated. In response to the legal challenge, FTC Chair Lina Khan expressed confidence in the agency's legal authority to implement the noncompete ban, citing clear legal grounds for the action.
The legal battle underscores the contentious nature of the FTC's move to prohibit noncompete agreements, a practice that has been prevalent in the business world for decades. As the lawsuits unfold in federal courts, the outcome will have significant implications for the regulation of business practices and the authority of administrative agencies like the FTC.
