Apr 24, 2024 - Business

Business groups sue to block FTC's ban on noncompete agreements

Illustration of a briefcase with a lock on it

Illustration: Sarah Grillo/Axios

Two powerful business lobby groups filed suit Wednesday against the Federal Trade Commission seeking to overturn its ban on noncompete agreements just one day after it was finalized.

Why it matters: The lawsuit will likely delay the ban from taking effect — or derail it entirely, and test the limits of the FTCs power.

  • Noncompetes are clauses in employment contracts that prohibit workers from taking jobs with their employer's competitors. They have become more widely used and criticized in recent years for unfairly restraining employees — particularly at the lower end of the income scale.

Zoom in: Filed by the Chamber of Commerce and the Business Roundtable, along with two Texas business groups, the suit argues that the FTC overstepped its authority in issuing the rule.

  • The rule "reflects an arbitrary and capricious exercise of the Commission's power," per the lawsuit.

The big picture: The Chamber cites the so-called Major Questions doctrine, established by the Supreme Court, which effectively curbs federal agencies' ability to craft new regulations.

  • It's a sign that this rule could ultimately be in the hands of SCOTUS, which has been less amenable to broad regulations.

The other side: The FTC says it expects an increase in workers' wages of between $400 - 488 billion over the next decade if the ban goes into effect.

Go deeper: New ban on noncompetes could have big impact on health care

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