New York
CNN
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Less than 24 hours after the FTC issued a final rule this week Prohibit employers from using non-compete agreements In the United States, the US Chamber of Commerce and the Business Roundtable filed a lawsuit against the agency in federal court in the Eastern District of Texas.
Another lawsuit was filed In federal court for the Northern District of Texas by Ryan Commercial Tax Services.
More may be presented in the coming weeks. “We believe additional lawsuits are likely,” said employment lawyer Daniel Turinsky, a partner at DLA Piper.
Even before Al-Qaeda The US Chamber promised to file a lawsuit on the grounds that the agency, in its view, had exceeded its administrative authority by prohibiting what it considered “unfair competition methods.”
Without clear legislative authorization from Congress, the FTC does not have the authority to issue and enforce blanket non-compete bans, the suit says.
“The FTC asserts that by using regulation, they can simply declare common business practices to be ‘unfair methods of competition’ and therefore illegal. This is despite the fact that non-compete agreements have been around longer than the 110-year-old FTC.” “So far, no one has suggested they are illegal.” If the FTC could regulate non-compete agreements, it could decide to regulate or even ban any other business practice. And all of this without a vote from Congress.”
The Chamber and Business Roundtable, along with a third plaintiff — the Longview Chamber of Commerce in Longview, Texas — are asks the court To issue a stay to prevent the rule from taking effect, a preliminary injunction that would prevent the FTC from enforcing the rule while the case is litigated, “or both.”
In response to the U.S. Chamber's lawsuit, FTC Chairwoman Lina Khan expressed confidence that the agency is on solid ground legally. Appearing on CNN's “The Lead With Jake Tapper” after the new non-compete ban was announced, she said the agency had “clear legal authority” to issue such a ban.
The FTC rule is not set to take effect until 120 days after its publication in the Federal Register. So maybe not before September.
But that effective date could be postponed if federal courts in Texas — or other courts where claims are filed — decide to grant a stay or preliminary injunction.
This leaves employers and employees in limbo when it comes to existing non-compete agreements, almost all of which will become unenforceable if the rule goes into effect. (The only exception here is the existing non-compete for senior executives – it will remain in effect regardless.)
In the near term, “I would generally ask clients to take a wait-and-see approach to the FTC rule while court challenges begin in the next few weeks,” Turinsky said.
If the rule is put on hold until cases are decided, and then appeals are filed, it could delay the rule's effective date by several more months if it is not ultimately repealed entirely.
Translation: It may be some time before the validity of the non-compete ban is determined, said James Weitz, a shareholder at Littler, an employer-side law firm, and co-chair of the firm's unfair competition and trade secrets practice group.
Employers who still seek to issue new non-competes while filing suits may face resistance from some employees who are now aware of the FTC's actions, Weitz noted.
