New federal ban on non-competes faces challenge from U.S. Chamber 

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The U.S. Chamber of Commerce filed a lawsuit on Wednesday against the Federal Trade Commission over a new ruling expected to ban nearly all non-compete employee agreements. 

The ruling, voted 3-2 by the FTC and announced on Tuesday, requires companies with existing non-compete agreements to inform current and past employees that they will not enforce those agreements. 

The suit, filed in a Texas federal court, alleges that the FTC lacks the power to adopt the rule. 

The U.S. Chamber of Commerce called the ruling a dangerous precedent for government micromanagement of business. 

“The Federal Trade Commission’s decision to ban employer non-compete agreements across the economy is not only unlawful but also a blatant power grab that will undermine American businesses’ ability to remain competitive,” said Suzanne P. Clark, U.S. Chamber of Commerce president and CEO. 

Jonathan Landesman, a partner in Cohen Seglias’ Philadelphia office and chair of the firm’s Labor and Employment Group, said that the rule is the most dramatic change in the law that he has witnessed in his 25 years of employment litigation. 

 “The FTC’s final noncompete rule unravels centuries of common law precedent, and retroactively and prospectively bans all noncompete agreements for all but a small slice of employees who qualify under the ‘senior executive’ exemption,” said Landesman. “Business groups such as the Chamber of Commerce are prepared to mount serious legal challenges to the FTC’s new rule, and it remains to be seen whether it is declared void and unconstitutional prior to its effective date in 120 days.” 

Under the Non-Compete Clause Rule, existing non-competes for the vast majority of workers will no longer be enforceable. There is an exception for non-competes for senior executives, but employers will be banned from entering or trying to enforce any new agreements, said the FTC. 

FTC Chair Lina M. Khan said the ban will give Americans the freedom to pursue new jobs, start new businesses or bring new ideas to market. 

“Noncompete clauses keep wages low, suppress new ideas, and rob the American economy of dynamism, including from the more than 8,500 new startups that would be created a year once non-competes are banned,” Khan said. 

The FTC first proposed the rule in early 2023. During the proposed rule’s 90-day public comment period, the FTC received over 26,000 comments with over 25,000 in support of the ban.