Business Groups Challenge FTC’s Ban on Non-Competes Amidst Debate over Labor Market Efficiency and Competition

Rewrite: The U.S. Chamber of Commerce and several other business organizations filed a lawsuit in Texas federal court challenging the Federal Trade Commission’s decision to prohibit non-competition clauses, which are commonly used by employers to prevent workers from joining competitors within their industry after leaving their current job. In its ruling on Tuesday, the FTC argued that such agreements stifle competition and hinder efficiency in labor markets, driving up consumer costs as a result of fewer available staff for other firms willing to offer better compensation packages elsewhere. The Chamber stated that “the sheer economic and political significance” surrounding this matter indicated it was one that required legislative rather than agency-level decision making, claiming the FTC lacked authority over such matters. Other plaintiffs in the suit include Business Roundtable, Texas Association of Businesses, and Longview Chamber of Commerce. The business groups argued that noncompete agreements were essential to protecting sensitive company data from being leaked or misused by former employees who might join rival firms. However, FTC spokesperson Douglas Farrar countered these claims, stating the agency’s legal authority in this matter was “crystal clear” and it would win its case at court. The commission estimates that around 30 million U.S workers (18% of the workforce) are currently subject to noncompete clauses; under the new rule, these agreements will be prohibited for all employees except senior executives, both in terms of future and existing contracts deemed “impermissibly retroactive” by business groups who claim they would lose protections previously agreed upon. The Chamber has been threatening legal action against this proposed FTC policy since its proposal was announced in January 2016; despite the Commission receiving approximately 26,00 comments on the matter (most of which were supportive), critics argue that many valid criticisms have not yet received a response from the agency. Meanwhile, there is bipartisan support for expanding current noncompete regulation into an outright ban in Congress itself.