Sean Heather
Senior Vice President, International Regulatory Affairs & Antitrust, U.S. Chamber of Commerce
Stephanie Ferguson Melhorn
Senior Director, Workforce & International Labor Policy, U.S. Chamber of Commerce
Updated
August 20, 2024
Published
March 06, 2023
The U.S. Chamber of Commerce scored a major legal victory for American businesses, workers, and the economy on Tuesday after the U.S. District Court for the Northern District of Texas set aside the Federal Trade Commission’s (FTC) ban on employment noncompete agreements.
"This decision is a significant win in the Chamber’s fight against government micromanagement of business decisions," U.S. Chamber of Commerce President and CEO Suzanne P. Clark said. "A sweeping prohibition of noncompete agreements by the FTC was an unlawful extension of power that would have put American workers, businesses, and our economy at a competitive disadvantage. We remain committed to holding the FTC — and all agencies — accountable to the rule of law, ensuring American workers and businesses can thrive."
READ MORE: U.S. Chamber Wins Lawsuit Over FTC Noncompete Agreements Ban
Why We Sued to Block FTC’s Noncompete Ban
The FTC’s ban on noncompete agreements is another attempt at aggressive regulatory proliferation. That’s why we sued the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.
Noncompete agreements can serve vital procompetitive business and individual interests—like protecting investments in research and development, promoting workforce training, and reducing free-riding—that cannot be adequately protected through other mechanisms such as trade-secret suits or nondisclosure agreements.
Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules. This decision sets a dangerous precedent for government micromanagement of business.
In addition to the nation’s capital, 46 states permit noncompete clauses, which have traditionally been an issue of state law.
On July 3, the U.S. District Court for the Northern District of Texas granted our motion for a preliminary injunction against the FTC's blanket ban on noncompete agreements.
Executive Vice President and Chief Counsel Daryl Joseffer stated, “This ruling is a big win in the Chamber’s fight against government micromanagement of business decisions. The FTC’s blanket ban on noncompetes is an unlawful power grab that defies the agency’s constitutional and statutory authority and sets a dangerous precedent where the government knows better than the markets. The U.S. Chamber will continue to hold the FTC accountable in court.”
On August 20, the court granted the Chamber’s motion for summary judgment holding that the FTC's rule “shall not be enforced or otherwise take effect,” because “the FTC lacks rulemaking authority with respect to unfair methods of competition.”
Chamber President and CEO
What Businesses Are Saying
What are businesses saying about how it would impact hiring? We conducted a survey to find out.
In our survey, we found that 80% of our respondents utilize restrictive covenants—including noncompete agreements—but 62% said that less than 10% of their U.S. workforce is subject to noncompete restrictions. Furthermore, we found that 78% of employers who responded offer additional compensation that covers the duration of the noncompete or longer. As such, an appropriate exchange exists where businesses ensure their sensitive information is safeguarded while providing financial support to former employees.
We asked participants how many times an employee subject to a noncompete agreement was able to join a competitor based on a successful negotiation between the employer and employee or competitor. The answer? Nearly half of the respondents have successfully reached a compromise that allowed both the employer to protect their interests and the employee to enter into new employment opportunities.
With a ban on noncompete agreements, the workforce can anticipate fewer opportunities and reduced investments in their education, training, and development. 67 percent of our respondents agreed that a near-total ban on noncompete agreements would have a negative impact on their business’s talent strategy and/or compensation strategy. Our survey found that employers would have to reduce the sharing of sensitive information with employees and reduce or defer compensation with employees should this ban take effect.
Chevron Deference Overturned: What's Next for Businesses
Where Local Governments Have Stepped in
There are concerns that some noncompetes extend beyond the necessary scope of the business or are improperly applied to workers with no legitimate business interest at stake. For their part, state and local governments have taken the lead in addressing the issue.
Take, for example, Washington D.C.’s restrictions on the use of noncompetes. Originally, the D.C. Council proposed a blanket ban on all noncompete agreements – similar to the ban the FTC is proposing. However, after hearing from concerned parties, the council's final version was much less restrictive. The Non-Compete Clarification Act of 2022 limits bans on noncompetes to exclude highly compensated individuals, defined as employees earning more than $150,000 a year, and provides various exceptions for certain specialists, like broadcast employees and healthcare professionals. The D.C. law also protects businesses by allowing for employee-employer contracts to prohibit an employee from using, selling, or disclosing an employer’s sensitive information in exchange for money or something of value.
In addition to the nation’s capital, 11 states have some sort of restriction on noncompete agreements. So far this year, 25 bills addressing noncompetes have been introduced in 17 state legislatures.
Our Take
As the current Administration continues to impose enormous and unnecessary regulatory burdens on businesses, we will continue to challenge government micromanagement and defend the rule of law.
About the authors
Sean Heather
Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.
Stephanie Ferguson Melhorn
Stephanie Ferguson Melhorn is the Senior Director of Workforce & International Labor Policy. Her work on the labor shortage has been cited in the Wall Street Journal, Washington Post, and Associated Press.
