Chamber of Commerce sues to block FTC's non-compete ban

Business groups led by the U.S. Chamber of Commerce sued the Federal Trade Commission Wednesday seeking to block a rule finalized this week that would outlaw non-compete provisions that prohibit workers from switching jobs within an industry.

In a complaint filed in Texas federal court, the nation's largest business lobby argued that the antitrust and consumer protection agency lacks the authority to issue rules that define unfair methods of competition. The FTC Act, which established the agency, allows it to bring cases challenging particular practices, the group said, but not to write rules. The Chamber was joined by Business Roundtable and several Texas business groups in challenging the rule.

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"The Commission's categorical ban on virtually all non-competes amounts to a vast overhaul of the national economy," the Chamber said in the complaint. The rule "reflects an unlawful and unprecedented exercise of bureaucratic power."

However, the regulator argued that its legal authority is "crystal clear" in the FTC Act.

"Congress specifically 'empowered and directed' the FTC to prevent 'unfair methods of competition' and to 'make rules and regulations for the purposes of carrying out the provisions'" of the law, FTC spokesperson Douglas Farrar said. "This authority has repeatedly been upheld by courts and reaffirmed by Congress. Addressing non-competes that curtail Americans' economic freedom is at the very heart of our mandate, and we look forward to winning in court."

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The FTC voted 3-2 along party lines on Tuesday to issue a final rule banning non-competes in nearly all cases. The agency's two Republicans dissented, adopting arguments similar to the business group that the FTC lacks clear congressional authority to write rules.

Democrats argued that the law explicitly allows the FTC to prohibit unfair methods of competition while another provision authorizes the agency "to make rules and regulations for the purpose of carrying out the provisions of" the law. Taken together, those provisions permit the FTC to issue rules defining unfair conduct, they say, citing a 1973 case that upheld the agency's rulemaking authority.