US business groups challenge ban on employee non-compete agreements in court

The Editor’s Digest, curated by Roula Khalaf, Editor of the FT, features her favorite stories in a weekly newsletter. In a recent development, the US Chamber of Commerce and other trade groups have filed a lawsuit against the US Federal Trade Commission after it voted to ban non-compete agreements. The coalition argues that the ban will adversely affect their ability to protect confidential information and investments in the workforce.

The lawsuit, filed in a federal court in Texas, includes groups such as the Business Roundtable, Texas Association of Business, and Longview Chamber of Commerce. They are seeking to void the rule and prevent the FTC from enforcing it. The new rule, approved by a 3-2 vote, bans most non-compete contracts that restrict workers from leaving for a competitor for a specific period and in a specific geographic region.

The FTC defended its decision, citing clear legal authority provided by Congress to address non-competes that restrict economic freedom. As the legal battle between the regulator and business groups plays out in court, employers are left in limbo as the rule moves through the US court system.

The US Chamber of Commerce has been a strong critic of the FTC’s move, arguing that non-compete agreements should be governed by established state laws. The regulator estimates that approximately 30 million people in the US workforce are currently affected by such contracts, which now extend beyond high-paying executives to hourly workers such as bartenders and security guards.