Business Groups Are Suing The Federal Government To Keep This Controversial Practice Alive

Business groups that represent employers are not pleased with the Federal Trade Commission’s new ban on noncompete agreements and have already gone to court seeking to block it.

The U.S. Chamber of Commerce, joined by the Business Roundtable and the Texas Association of Business, filed a lawsuit Wednesday in federal court in Texas arguing that the FTC has overstepped its legal authority in issuing the rule. The commission, which enforces antitrust law, finalized the historic new regulation in a 3-2 vote the previous day.

Noncompete agreements forbid workers from taking jobs at competing businesses for a certain period of time, effectively locking workers into their current positions. It’s only logical for business groups to be upset with the FTC; banning noncompetes would shift more bargaining power to workers, forcing employers to improve wages and working conditions or risk losing talent to their competitors.

The FTC said that the rule would go into effect 120 days after it appears in the Federal Register. The Chamber could ask a judge to grant an injunction to stop the noncompete rule from taking effect while the case is being litigated.

Conservative groups often choose to mount their challenges to progressive federal policies in Texas, where they’re more likely to find a judge who shares their dislike for the regulatory state — a legal practice called “forum shopping.” The Chamber filed its lawsuit in Texas’ Eastern District, which falls under the U.S. Court of Appeals for the 5th Circuit, considered the most right-wing of the federal circuits and a place where regulations go to die.

Many legal observers expect the case to eventually reach the U.S. Supreme Court, where a 6-3 conservative majority tends to side with businesses in contentious decisions.

The FTC has insisted that it’s on solid footing in issuing the rule. Lina Khan, the commission’s chair, said in a CNN interview Wednesday that “we have clear legal authority” to ban the agreements.

Academics, politicians and policymakers, including President Joe Biden, have assailed noncompete agreements for years because of the way they force workers to stay in crummy, low-paying jobs rather than switching to something better. The FTC says they also stifle innovation by preventing people from starting their own businesses.

The commission’s rule would render existing noncompetes unenforceable (with the exception of those applied to senior executives, who are less likely to be coerced into signing them) and bar employers from entering into new ones.

When the ban was first proposed last year, it proved popular among Americans. Polling from Ipsos at the time showed that 3 in 5 respondents supported such a regulation, including 66% of those who were employed.

Given public approval for such a ban, it’s not surprising that many detractors have objected to the FTC’s move mostly on procedural grounds, rather than defending the use of the agreements themselves. Republican Andrew Ferguson, one of the two FTC commissioners who voted against the rule, said that he was “sympathetic” to the ban’s aims, but maintained that the agency was encroaching on Congress’ power.

In Wednesday’s lawsuit, the Chamber also argued that noncompetes were legitimate and necessary, claiming that employers need to protect the time and money they invest in employee training. Banning the contracts would create “burdens” that were “immediate and significant,” the lobbying group alleged.

“Companies will face substantial legal costs as they are forced to resort to other tools to attempt to protect their investments,” it said. “And the economy as a whole will suffer as start-ups and small businesses are unable to prevent dominant firms from hiring their best employees and gaining access to their confidential information.”

The Student Borrower Protection Center, a nonprofit advocacy group that has supported the ban, said the Chamber and other groups went to Texas for a reason: They were looking “to right-wing judges” to win their preferred policy outcome.

“In a democracy, the courts aren’t supposed to be the ultimate policymakers – but the Chamber knows that this federal judiciary can’t wait to block policies that value people over corporate profits,” the advocacy group said in a statement.