Ban on noncompete clauses gets challenged in court

I wrote yesterday about how the FTC had banned noncompete clauses for all but high-level employees. It is absurd to think that low-level employees in places like fast food and the hospitality industry have valuable proprietary information that they could give to their new employers. These clauses are nothing but a way to prevent such employees from finding better jobs, and thus has the effect of suppressing wages.

It should come as no surprise that the US Chamber of Commerce immediately filed a lawsuit challenging the power of the FTC to ban those clauses.

The Chamber’s lawsuit in federal court in Tyler, Texas, alleges that the U.S. Federal Trade Commission lacks the power to adopt sweeping rules such as the ban on so-called noncompete agreements released on Tuesday, which is set to take effect in August.

“Companies will face substantial legal costs as they are forced to resort to other tools to attempt to protect their investments,” the Chamber said. “And the economy as a whole will suffer as start-ups and small businesses are unable to prevent dominant firms from hiring their best employees and gaining access to their confidential information.”

In a statement, FTC spokesman Douglas Farrar said federal law was “crystal clear” that the agency has the power to make rules to prevent unfair methods of competition.

“Addressing noncompetes that curtail Americans’ economic freedom is at the very heart of our mandate, and we look forward to winning in court,” Farrar said.

The commission and Democrats and worker advocates who support the rule say it is necessary to rein in the increasingly common practice of requiring workers to sign noncompete agreements, even in lower-paying service industries such as fast food and retail. The agreements suppress workers’ wages by making it difficult for them to switch jobs, they say.

As also should be no surprise, the Chamber of Commerce has gone ‘judge shopping’ to find a federal judge who would be sympathetic to their case, and so they filed it in a division of the US district court in east Texas where the only judge is a Trump appointee.

I wrote before that just last month, the judicial body that oversees the federal courts put in a rule that would have prevented parties from filing suits in areas where they was only one judge and hence they could find one whom they felt would rule in their favor. But Texas decided that they wanted to stick with the old system, thus neutralizing that rule.

The Chamber of Commerce is probably expecting this judge to issue an injunction that will prevent the FTC from implementing the rule pending the resolution of the case, and that the judge will also eventually rule in their favor. The FTC will appeal but the Appeals Court circuit that encompasses Texas is also conservative and is likely to rule in favor of the Chamber and so this case is likely to end up in the US Supreme Court.

All that is going to take a long time. As I have said many times before, if you have a lot of money, you can really jam up the legal system for years on end.


  1. Pierce R. Butler says

    Given the likely verdicts from these Republican courts, perhaps the cleverer Democrats will introduce bills extending non-competes to upper-level white-collar professions, by banning the revolving-door pattern of government employees going to work for corporations and vice-versa.

    Not that this would pass, unless the voters finally revolt against the more revolting party, but it would provide some amusement from watching the business-class puppets explain why their rules should apply to fast-food cooks but not to attorneys.

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