U.S. Chamber of Commerce files to halt FTC ban on non-compete agreements

As expected, on April 24, 2024, the day following the Federal Trade Commission’s announcement of its Non-Compete Rule, the United States Chamber of Commerce ("Chamber") has filed a lawsuit against the FTC seeking to halt the implementation of the Commission’s unprecedented sweeping ban of non-competes across the country.  The Chamber filed the case in the United States District Court for the Eastern District of Texas – Tyler Division, Case No. 6:24-cv-00148.

Click here to see the full Complaint and Motion.

The Chamber is seeking an immediate stay and/or preliminary injunction which would serve to stop the Non-Compete Rule from going into effect pending conclusion of the litigation and the likely review and decision by the United States Supreme Court on the matter.

In its brief, the Chamber sets forth the following principal and compelling reasons for the federal court to stop the Non-Compete Rule in its tracks:

1. Under Section 6 of the of the Federal Trade Commission Act (the “Act”), the FTC is not authorized by Congress to issue “substantive rules” that generally “bind private parties.”  By the FTC’s own estimation, this retroactive Rule will immediately invalidate approximately 30 million privately negotiated agreements. The Chamber argues that the FTC does not have the legislative authority to pass and implement such a rule.  Rather, any such authority lies with Congress.
2. The FTC’s classification of all non-competes as “unfair methods of competition” is contrary to Section 5 of the Act. That is, for such a broad prohibition against “all” non-competes, the FTC was required to show that “all” non-competes “do more competitive harm than good.”  The FTC fell woefully short of this requirement, according to the Chamber. Having failed to make the required showing, the FTC is simply substituting its judgment for that of Congress and the states, which have long determined (and in many instances, legislated) what constitutes reasonable restrictions necessary to protect an entity’s legitimate business interests in the promotion of fair competition.
3. The FTC failed to show a “clear” congressional mandate under the Act for the Rule’s retroactive effect. Now, argues the Chamber employers and businesses are scrambling to figure what other steps they can take to protect their confidential and proprietary information, among other legitimate business interests, within the next 120 days.
4. The FTC’s Rule is the result of “flawed decision making” as its categorical ban on non-competes has no relationship to the evidence on non-competes and it failed to consider less onerous alternatives, such as salary level thresholds for enforcement or an explicit exception for non-solicitation agreements (prohibiting the poaching of customers or employees for a limited period of time) by way of example.

The Chamber is not the only business group filing suit against the FTC over the Rule.  Several others have already filed actions and many more will do so, making the same or similar arguments. With this lawsuit, the fate of the FTC’s Non-Compete Rule is at best, uncertain. 

McDonald Hopkins will continue to closely follow the legal challenges and further developments regarding this issue and provide updates as they unfold.