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Chamber of Commerce Sues to Overturn FTC Noncompete Ban

 |  April 24, 2024

The U.S. Chamber of Commerce has taken a decisive step in contesting the Federal Trade Commission’s (FTC) recent prohibition on noncompete agreements, filing a lawsuit aimed at striking down the sweeping rule.

The lawsuit, filed on Wednesday in federal court in Tyler, Texas, challenges the FTC’s authority to implement such regulations, asserting that it oversteps the agency’s jurisdiction as defined by federal law.

The Chamber’s legal action follows swiftly on the heels of the FTC’s announcement of the near-total ban on noncompete agreements, which is slated to take effect in August. According to Reuters, the Chamber contends that while the FTC is tasked with enforcing existing antitrust legislation, it lacks the prerogative to dictate permissible business conduct beyond those parameters.

Citing concerns over potential economic ramifications, the Chamber warned of significant legal expenses for companies compelled to seek alternative means of safeguarding their investments. Additionally, it raised alarms about the broader impact on entrepreneurship and innovation, suggesting that startups and small businesses may be disproportionately hindered in their ability to retain talent and protect proprietary information.

The lawsuit marks the latest in a series of legal challenges to the FTC’s rule, with tax service firm Ryan LLC lodging the first formal protest on Tuesday in a separate federal court in Texas. Despite mounting opposition, FTC spokesperson Douglas Farrar remained resolute, affirming the agency’s mandate to combat practices that stifle competition.

In a statement, Farrar emphasized the FTC’s commitment to upholding economic freedom and expressed confidence in prevailing in court. Echoing sentiments shared by proponents of the rule, Farrar underscored the necessity of addressing noncompete agreements as a means of empowering workers and fostering a more equitable labor landscape.

Indeed, advocates argue that the ban on noncompete agreements is essential to rectifying disparities in worker mobility and compensation, particularly within lower-wage industries such as fast food and retail. By eliminating barriers to job transitions, proponents assert that workers stand to gain substantially in terms of wages and employment opportunities.

Citing FTC projections, Reuters reported that the ban on noncompete agreements could yield significant economic benefits, including a potential increase in worker earnings totaling up to $488 billion over the next decade. Furthermore, it is anticipated to stimulate entrepreneurship, leading to the establishment of over 8,500 new businesses annually.

Source: Reuters