The U.S. Chamber of Commerce sued the Federal Trade Commission Wednesday, alleging that the agency’s ban on noncompete agreements between employers and employees is arbitrary and capricious and outside the scope of FTC’s legal authority.
According to the suit, filed in the U.S. District Court for the Eastern District of Texas, Congress did not give FTC the power to issue substantive regulations regarding unfair methods of competition.
Even if FTC did have such an authority, the Chamber alleged that the noncompete ban would still be unlawful because “the sheer economic and political significance of a nationwide noncompete ban demonstrates that this is a question for Congress to decide, rather than an agency.”
The Chamber said that the U.S. Supreme Court has invoked the major questions doctrine to reject attempts by administrative agencies to take such actions. In one recent example, the high court cited the doctrine in 2022, when it upheld a lower court’s stay on the Occupational Safety and Health Administration’s COVID-19 vaccination emergency temporary standard.
Separately, the Chamber alleged that the noncompete ban is impermissibly retroactive.
“The Commission’s astounding assertion of power breaks with centuries of state and federal law and rests on novel claims of authority by the Commission,” the Chamber said. “The Commission has no authority to issue the rule, and even if it did, it has exercised that authority in a manner that flouts the fundamental requirements of the [Administrative Procedure Act]. As a result, this Court should declare the Noncompete Rule unlawful and set it aside.”
FTC issued its noncompete ban Tuesday in a 3-2 vote. The final rule provides that employers violate federal antitrust laws when they enter into noncompete agreements with employees on or after the rule’s effective date. The rule also renders existing noncompete agreements unenforceable, except those with certain senior executives.
The rule is scheduled to take effect 120 days after it is published in the Federal Register.
The venue of the Chamber’s suit is noteworthy given that the U.S. District Court for the Eastern Texas has been the site of previous regulatory battles between the Biden administration and employer groups. In recent weeks, a judge of the court vacated the National Labor Relations Board’s joint employer rule, while a separate suit filed with the court seeks to block enforcement of the U.S. Department of Labor’s independent contractor rule.