18

Recently the Federal Trade Commission narrowly banned noncompetes in the United States, a move I believe they've been considering for a while. The Chamber of Commerce immediately stated they intended to sue, arguing that this is an overstep of the FTC's power.

What would the grounds for the lawsuit be? Why is banning noncompetes so controversial?

2

5 Answers 5

28

Last question first: Banning non-competes is opposed by the Chamber of Commerce because the Chamber of Commerce represents businesses, and businesses believe that non-compete clauses protect their interests in multiple ways - increasing employee retention, controlling labor costs, reducing "poaching" behaviors which increase costs and disrupt businesses, and protecting trade secrets and customer lists from an employee taking them to a competitor (or using them to start a competitor). Some of these benefits to business come at the expense of workers' rights, including rights to fair wages and to choose to move to a different job if they wish, which is why this move is controversial.

There are a number of potential ways in which the Chamber of Commerce could try to justify a lawsuit. I can't judge which are likely to succeed or fail at this point, or even guess which they're likely to try - we'll have to wait until a suit is filed. But here are some scenarios.

  • US Federal Agencies have some rule-making authority, but that authority is limited in scope. The CoC could claim that the FTC is not authorized by Congress to make this rule because this rule does not relate to the functions of the FTC under the Federal Trade Commission Act.
  • US Federal Agencies need to follow certain procedures in rule-making. The CoC could argue that the FTC failed to provide appropriate notice or consideration, or otherwise violated procedures.
  • Restrictions on trade generally need to serve a lawful government purpose, and rules from government agencies cannot be "arbitrary and capricious". The CoC could argue that this regulation doesn't meet those requirements.
  • All US Government actions are subject to the US Constitution. The CoC could argue that this regulation violates the constitution, for example, because it restricts intrastate (and not just interstate) commerce, or because it infringes on the rights of employers and employees to negotiate contract terms amenable to themselves, or because (they may argue) it unfairly impacts certain types of businesses.
6
  • I'm fairly sure no lawyer in their right mind would try to argue it is unconstitutional on the basis of restricting intrastate commerce, because as long as it applies to interstate commerce, the Constitution allows it. The Interstate Commerce Clause has, if anything, been interpreted far more broadly than necessary, but this would be well within any narrow bounds people have argued for historically. I somehow doubt any non-compete agreement is only enforced within the bounds of a single state (and even if they did, we restrict intrastate drug sales on the basis of the interstate market). Commented Apr 25 at 11:13
  • 1
    @CGCampbell its a restriction on contract law. Same deal as minimum wage laws, for example. Congress may pass those but the executive needs a clear mandate from Congress to restrict contract law. Commented Apr 25 at 17:35
  • 1
    @CGCampbell - the answer clearly explains how this rule is a restriction: non-compete clauses protect their interests in multiple ways... The FTC is restricting businesses from operating in ways beneficial to them. How would the CoC react if laws were passed making it unlawful to use competitors information.. ?? There already are such laws: Patents; Copyrights; Trademarks; Laws regarding industrial spying... And the CoC is fine with those laws, because they work to protect businesses and innovators.
    – Vector
    Commented Apr 26 at 19:21
  • 1
    Realistically, the first two bullet points are likely to be the thrust of any challenge, and realistically, the second bullet point won't go anywhere. There might be room for a non-delegation doctrine challenge constitutionally (i.e. that this was too big of a decision for Congress to allow an agency to take). Honestly, I think the case for any of the challenges is legally weak, but if you get the right judges, who knows?
    – ohwilleke
    Commented Apr 26 at 20:40
  • 1
    A non-compete itself takes away the right to freely negotiate one's contract terms. So FTC's regulation takes away the right to give up a right (from those whose wages are below $120k). The 4th point wouldn't fly as long as the government can show that it has the right to restrict contract clauses which give up rights by those who have reduced negotiating power. Governments (certainly state and local ones) do this all the time. The only question is whether the FTC went too far in this restriction, but $120k threshold is not likely to be seen as unreasonable.
    – wrod
    Commented Apr 27 at 0:01
18

I'm just slightly expanding on Dan's wonderful answer in regards to the second question:

Why is banning noncompetes so controversial?

It is not (among normal people).

The United States Chamber of Commerce, however, is not normal people. It's not even supposed to represent normal people. It's a (or better, the top-level) business association. Aka, it is representing employers first and foremost, even if (or cynically: especially if) going against the will of the people. Despite sounding so (and me believing them to be, while reading the question the first time), they are not a government body or agency in any way, but a "business association", aka, a lobbying group.

And therefore any ruling, law or even suggestion that restricts the power, influence or potential thereof for employers is "controversial" to this body. That is their job and reason for existence. To make a stink, complain about and/or sue or lobby against any and all regulations impacting their constituents (which again is companies and corporations, not the average American citizen).

And for that reason it doesn't really matter whether the regulation has some obvious legal weak points or not; it's a critical infringement of employer control over employees and therefore will be attacked by any means available to the Chamber of Commerce. Since lobbying and other preventative activities obviously failed (after a far too long fight given the significant popular support for this measure), they are now turning to remedial action, aka lawsuits. Dan's answer already points out several potential angles and you can be sure that their lawyers will look into all of them for anything of any substance.

Their declaration was not the announcement of a concrete (aka already fleshed out) suit, but rather the intent to sue on any even semi-plausible basis in order to overturn this regulation of their clients.

15
  • 5
    61% does not make something "uncontroversial"
    – Ben Voigt
    Commented Apr 24 at 16:08
  • 7
    @BenVoigt givent hat the study also noted that 62% had never heard about the proposal (and could only answer after being informed on the issue) [I would love to see a questionaire breakdown by people knowing about the issue beforehand but Ipsos completely fails here], I'd claim it to be a noncontroversial topic, because otherwise more people would know about it. Look at abortion rights or other actually controversial topics for comparison. People know about those. [Note that these numbers are from early 2023, couldn't find anything newer]
    – Hobbamok
    Commented Apr 24 at 16:16
  • 3
    @JonathanReez Sour in relation to wages and wage growth. Sour in employee/employer relations. Not sour in employment levels. The economy, despite having good numbers, is not perceived as being great. There are plenty of bitter attitudes regarding employment in the current market. Songs like "Rich Men North of Richmond" skyrocketing in popularity is a testament to these negative sentiments. At the same time, you have non-competes appearing in business contracts with entry-level employees at retailers. The added restriction of a non-compete wasn't being compensated for.
    – David S
    Commented Apr 24 at 22:07
  • 2
    @JoeW Unless they're unemployed because a noncompete is stopping them taking up the jobs they're qualified for. Commented Apr 24 at 22:22
  • 2
    @DanielHatton I don't think that number would be large enough to actually change the results of the poll. Not to mention if that really was the case they would be much more likely to support the banning of non competes as that would allow them to get a job.
    – Joe W
    Commented Apr 24 at 22:53
2

What would the grounds for the lawsuit be?

One of the reasons given in the lawsuit is that the ruling allegedly makes already signed non-competes retroactively invalid. The FTC did make an exception for senior execs, but the Chamber was hardly satisfied:

The only meaningful limit the Commission adopted in the Final Rule was a carve-out for existing (but not future) noncompetes involving “senior executives.” Final Rule, at 564. That vague qualification appeared nowhere in the proposed rule, makes little sense, and does little to mitigate the vast overbreadth of the Commission’s ban.

Besides that, the lawsuit indeed claims that the FTC has exhibited an "astounding assertion of power" and a "novel claim of authority". This is expounded on numerous pages, e.g.

the Commission lacks the authority to issue regulations proscribing “unfair methods of competition.”

Aside from that, the Chamber says that non-competes have been "a fact of life" for decades and that they've been routinely enforced by courts. They also cite the fact that legislative attempts to ban these have failed.

AFAICT the lawsuit doesn't reference this explicitly (but I only searched for the most obvious phrase inside), however some other scholars have said that the FTC's new emphasis on unfair competition practices does not have a clear basis in law, and so is subject to the (relatively new) major questions doctrine of SCOTUS. (There are dozens of ways in which that issue could be referenced, e.g. by mentioning one of the fairly numerous prior lawsuits listed in Wikipedia that involved that, and I don't have the patience to search for all of them inside the Chamber's lawsuit. But I did search for 'EPA' because that was involved in some such. Interestingly enough, I didn't find ref'd one of the old lawsuits, but the Chamber is citing their own/new lawsuit against EPA filed this year.)

-2

What would the grounds for the lawsuit be?

On April 24, 2024, the US Chamber of Commerce filed a complaint (sued) against the FTC in United States District Court For The Eastern District Of Texas Tyler Division: CHAMBER OF COMMERCE OF THE UNITED STATES OF AMERICA, BUSINESS ROUNDTABLE, TEXAS ASSOCIATION OF BUSINESS, and LONGVIEW CHAMBER OF COMMERCE - COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF, wherein is explained in detail the grounds for the suit.

That complaint is lengthy and goes in depth into the matter, but the upshot is that "the US Chamber of Commerce has numerous members who use noncompete agreements for entirely legitimate purposes and will be adversely affected by the Noncompete Rule". Also enumerated there are constitutional objections that result in adverse impact on the members of the CoC, and mandate relief by the court.

The complaint asks the court for injunctive relief and ultimately to strike down the FTC's ruling.

But a suit filed by the CoC solely on constitutional grounds, as @Dan seems to suggest, is likely to be thrown out, due to the CoC's lack of standing in such a suit. Courts' position on such suits is generally that it is the duty and responsibility of the Legislature and the Execute to uphold the Constitution. Private individuals and organizations have no standing to sue on purely constitutional grounds:

ArtIII.S2.C1.6.1 Overview of Standing

The concept of “standing” broadly refers to a litigant’s right to have a court rule upon the merits of particular claims for which he seeks judicial relief.1 The Supreme Court has held that, as a threshold procedural matter,2 a litigant must have standing in order to invoke the jurisdiction of a federal court so that the court may exercise its “remedial powers on his behalf.” 3 In general, for a party to establish Article III standing, he must allege (and ultimately prove) that he has a genuine stake in the outcome of the case because he has personally suffered (or will imminently suffer): (1) a concrete and particularized injury; (2) that is traceable to the allegedly unlawful actions of the opposing party; and (3) that is redressable by a favorable judicial decision.4 These requirements seek to ensure that federal courts do not exceed their Article III power to decide actual “cases” or “controversies.”

Why is banning noncompetes so controversial?

Because "the US Chamber of Commerce has numerous members who use Noncompete agreements for entirely legitimate purposes and will be adversely affected by the Noncompete Rule", as explained in the above mentioned complaint.

Also because many people see this rule as an overstepping of federal authority and unconstitutional, which point is also elaborated on in said complaint.

1
-4

Question #1:

What would be the grounds for the US Chamber of Commerce to sue the FTC over its new rule concerning noncompetes?

In the United States anybody can sue anybody. Whether the US Chamber of Commerce has grounds or not will be for the court to decide. Two thoughts.

  1. A private entity suing regulatory branches of government to eliminate their oversight role is the sign of our times. Such a suit would fall in line with other efforts to limit the SEC, FTC, EPA

Supreme Court’s Push to Weaken Government Oversight Opens Door for Meta to Attack FTC

This term, the cases before the Supreme Court represent the apex of a decades-long effort by conservative activists and jurists to kneecap functional federal agencies that protect workers, consumers, investors, and the environment in favor of the interests of corporations and the ultra-wealthy. During recent oral argument in SEC v. Jarkesy, the six conservative justices on the Supreme Court opened the door to challenge the very constitutionality of the federal agencies that protect the American people from corporate misconduct. Later the same day, Meta coincidentally filed a lawsuit seeking to declare the Federal Trade Commission (FTC) unconstitutional on many of the same grounds the court considered in Jarkesy.

  1. More than half of the States in the United States (28 as of 2020) are "right to work states". These states make organizing labor more difficult, but they also broadly make noncompete unenforceable. Right-to-work refers to a worker not being able to enter an agreement which would interfere with him freely pursuing employment in his given profession. The broader the non-compete the more illegal it is.

In general I would say an FTC's changing policy can be questioned in Court. The U.S. constitution gives the federal government the right to regulate the economy and interstate commerce specifically. The suit could challenge whether existing laws empower that regulation to be done by the FTC without a new law mandating the action. The supreme court has recently been repealing long standing regulatory positions based on this novel and restrictive interpretation of the Constitution.

0

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .