Why the U.S. Chamber Is Suing to Block FTC’s Noncompete Ban

The Federal Trade Commission (FTC) has issued a new rule that will ban the use of noncompete agreements in the United States. The FTC is acting outside its constitutional and statutory authority and instead is undermining well-established state laws that have long governed the use of noncompete agreements. 

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.   

We’re Suing to Block FTC’s Non-Compete Ban

The FTC’s ban on noncompete agreements is another attempt at aggressive regulatory proliferation. That’s why we’re suing the FTC to block this unnecessary and unlawful rule and put other agencies on notice that such overreach will not go unchecked.

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.

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 span of the noncompete duration 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.

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 overreach and defend the rule of law.

About the authors

Sean Heather

Sean Heather is Senior Vice President for International Regulatory Affairs and Antitrust.

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Stephanie Ferguson

Stephanie Ferguson is the Director of Global Employment Policy & Special Initiatives. Her work on the labor shortage has been cited in the Wall Street Journal, Washington Post, and Associated Press.

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