Business Groups Sue FTC Over New Noncompete Clause Ban

In a rapid response to the Federal Trade Commission’s (FTC) decision on April 23, 2024, to implement a ban on nearly all new noncompete clauses in employment contracts, prominent business groups including the U.S. Chamber of Commerce and the Texas Association of Business have filed a lawsuit. The complaint, lodged in the U.S. District Court for the Eastern District of Texas, challenges the FTC’s authority to enforce such a sweeping prohibition under the FTC Act, which traditionally permits the agency to address specific unfair competitive practices on a case-by-case basis.

The lawsuit articulates several grounds for objection. Firstly, it claims that the FTC does not possess the authority to broadly define what constitutes unfair methods of competition to impose such a ban. It also argues that the rule is unlawfully retroactive and represents an arbitrary and capricious use of FTC’s regulatory powers. Furthermore, it highlights the practical benefits of noncompete agreements, such as protecting business investments in workforce and proprietary information, which, according to the plaintiffs, also benefit workers by enhancing training and bargaining power for higher wages.

As the legal challenge unfolds, the FTC’s rule faces significant scrutiny and potential delays in implementation. The outcome of this case could significantly influence the regulatory landscape surrounding employment contracts and noncompete clauses in the United States.