The U.S. Chamber of Commerce followed through on its promise to sue the Federal Trade Commission to ban agreements that prevent workers from leaving a company for a rival, arguing in a lawsuit filed Wednesday that the agency overstepped its authority. Have violated.
The lawsuit, filed in the U.S. District Court in Texas, argued that the FTC does not have the authority to issue rules defining unlawful methods of competition. The Chamber of Commerce was joined by three other business groups: the Business Roundtable, the Texas Association of Business and the Longview Chamber of Commerce.
The lawsuit came a day after the FTC announced a final rule banning non-compete agreements. The rule was approved in a 3-to-2 vote, with both Republican commissioners voting against the measure.
The Chamber of Commerce vowed to challenge the rule immediately after the vote. Its lawsuit called the ban “a major alteration of the national economy”, and that it applies to many contracts that cannot harm competition in any way. It says the agency does not have the power to issue sanctions and even if it did, an express ban on such agreements would not be valid.
Ryan LLC, a tax services firm in Dallas, also sued the FTC, raising generally similar arguments to a lawsuit filed in another U.S. District Court in Texas. Ryan is represented by Gibson Dunn partner Eugene Scalia, who was secretary of Labor during the Trump administration.
FTC spokesman Douglas Farrar said in a statement that Congress has empowered the agency to prevent “unfair practices of competition,” which it believes includes non-compete agreements.
“Our legal right is absolutely clear,” he said. “Addressing non-competes that curtail Americans’ economic freedom is at the core of our mandate, and we look forward to victory in court.”
The forums for the cases were selected by Trump-appointed district court judges, including J. Campbell mounts challenges to Barker and Ada Brown in the Northern District. Any appeal will be sent to the Fifth Circuit Court of Appeals in New Orleans, where 12 of the 17 judges were nominated by Republican presidents, six of whom were nominated by Mr Trump.
Debbie Berman, an attorney on the management side of Jenner & Block, said the two lawsuits filed in Texas were just the beginning. He said the question of the FTC's authority to ban noncompetes will probably arise in every litigation involving such agreements going forward, and different courts are likely to reach different conclusions that it would be appropriate for the Supreme Court to consider. Will go.
“This court has certainly indicated that it views the agencies' powers as narrow and too strictly tied to the law for which they are promulgating rules and regulations,” Ms. Berman said.
The FTC's rule would void existing non-compete agreements, except for those applying to executives in “policy-making positions” who make at least $151,164 a year. It would also prevent companies from imposing new non-competes, even on incumbents.
It is likely to become law this week, 120 days after it was published in the Federal Register, though it could get caught up in a lengthy legal battle.
Companies typically use non-competes to protect trade secrets and to avoid spending money to train employees who may rely on a competitor. The FTC and labor advocates say that non-compete agreements suppress competition for labor, leading to lower wages.
The agency's rule was supported by unions including the AFL-CIO and the Building Trades Unions of North America. Trade groups opposing the rule include the Securities Industry and Financial Markets Association, a trade organization that represents Wall Street, and the American Trucking Association.
Challenges to the rule center on whether the FTC has the power to make such sweeping decisions.
In its final rule, the agency said Congress has given it the authority to adopt rules “for the purpose of preventing unfair methods of competition” and “for the purpose of defining certain conduct as unfair methods of competition.”
The FTC has relied on a 1973 appellate court decision – National Petroleum Refiners Association v. FTC – which allowed the agency to issue substantive rules. That case addressed the agency's ability to post octane ratings on gas pumps.
Former FTC Chairman William Kovacic said the agency may face an uphill battle to deal with challenges to its rule on anti-competes.
Mr. Kovacic said, “The FTC believes that prior jurisprudence and law have created a bridge on which its non-compete rule can operate.” “The danger to the Commission and its rules is that the bridge is fragile, and the FTC wants to drive very heavy trucks on it.”
The effort to block the FTC's non-compete rule comes amid a broader protest by some businesses, lawmakers and others against the power of executive agencies.
The Supreme Court is expected to rule by June on the case that seeks a more narrow interpretation of the powers granted to federal agencies. That case, like the cases against the FTC, seeks to limit the agencies' power beyond that explicitly granted by Congress.
Companies including SpaceX, Trader Joe's and Amazon have filed suit, arguing that the National Labor Relations Board, which regulates labor relations, is unconstitutional.
Neil Bradley, chief policy officer of the Chamber of Commerce, said these types of challenges are an “appropriate response” to federal agencies that have sought to expand their authorities.
“It's that kind of regulatory overreach in micromanagement, and the new precedents that agencies are trying to set, that is creating a lot of concern in the business community,” he said.
Laura Padin, a lawyer with the National Employment Law Project, said a sympathetic Supreme Court has “emboldened” businesses to bring more challenges to the agencies' power. By arguing that every regulation must be explicitly ordered by Congress, which often leads to deadlock over legislation, He said business groups are essentially asking not to be subject to any new requirements.
“What we have seen is a resurgence of corporations that are challenging the basic authority of administrative agencies to perform their basic functions,” Ms. Padin said.
