The U.S. Chamber of Commerce on Wednesday filed a lawsuit against the Federal Trade Commission (FTC) over the agency's ban on noncompete agreements.
In the lawsuit, which was filed in federal court in Tyler, Texas, the Chamber argues that the FTC lacked the constitutional and statutory authority to advance the sweeping regulation.
The Chamber said after the FTC's 3-2 vote, which advanced with the support of the agency's majority Democratic commissioners, that there are already legal frameworks for determining whether a given noncompete should be upheld or dismissed, and would undermine American businesses' competitiveness.
The FTC on Tuesday released its final regulation banning noncompete agreements, which prohibit an employee from leaving their current company to work for a competitor and are more commonly used in more senior positions — though some retail and food service companies have also applied them to lower-level workers as well.
FTC VOTES TO BAN NONCOMPETE AGREEMENTS
The rule, which takes effect in August, bans all new noncompetes as an unfair competitive practice. Existing noncompetes would be treated different for senior executives — defined by the FTC as workers in a "policy-making position" who earn over $151,164 annually — as they could remain in for senior executives, while noncompetes for other workers would become unenforceable.
U.S. Chamber of Commerce CEO Suzanne Clark said in a statement after the FTC's vote Tuesday that the "decision to ban employer noncompete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses' ability to remain competitive."
FTC VOTES TO BAN NONCOMPETE 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. Noncompete agreements are either upheld or dismissed under well-established state laws governing their use," Clark said.
"Yet, today, three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy," she added.
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FTC spokesman Douglas Farrar told FOX Business in a statement, "Our legal authority is crystal clear. In the FTC Act, Congress specifically 'empowered and directed' the FTC to prevent 'unfair methods of competition' and to 'make rules and regulations for the purposes of carrying out the provisions of' the FTC Act."
"This authority has repeatedly been upheld by courts and reaffirmed by Congress. Addressing noncompetes that curtail Americans' economic freedom is at the very heart of our mandate, and we look forward to winning in court," Farrar added.
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The Chamber's lawsuit is one of several expected to be filed against the FTC rule, and comes after tax service firm Ryan LLC filed the first legal challenge on Tuesday in a different federal court in Texas.
Reuters contributed to this report.
