Earlier this week, the U.S. Chamber of Commerce told a Texas federal judge to block the Federal Trade Commission’s final Noncompete Rule, which would impose a comprehensive ban on new noncompetes with all workers, including senior executives. Here is a link to the 40-page brief.
But I’ll break it down for you in about 400 words.
To convince the court to ice the rule now, the Chamber must convince the judge that (1) it will likely prevail on the merits (i.e., the FTC Rule is invalid), (2) it will suffer irreparable harm without an injunction, and (3) an injunction will service the public interest.
The Chamber will succeed because…
The Chamber argues that the FTC has no authority to issue regulations prohibiting “unfair methods of competition.” Can the FTC initiate enforcement action for individual scofflaw employers? Sure. However, the Chamber argues that “no provision of the FTC Act empowers the Commission to issue substantive unfair-competition rules,” Congress never explicitly delegated such broad rulemaking authority to the Commission. Further, the FTC has failed to demonstrate that all noncompetes do more harm than good. Instead, arguing that noncompetes collectively harm competition is insufficient to support a ban. Moreover, “at a minimum, the FTC Act contains no language authorizing the Commission to retroactively invalidate millions of existing noncompetes.”
Put simply, the FTC lacks the power to impose a comprehensive ban on noncompetes.
The FTC Rule will cause irreparable harm.
The Fifth Circuit, where this lawsuit is pending, recognizes that “complying with a regulation later held invalid almost always produces … irreparable harm.” Specific to the FTC rule, the Chamber argues that “businesses cannot rely on their existing noncompetes or enter into new ones under the looming shadow of a Rule deeming those agreements unlawful.” Meanwhile, “millions of workers and businesses will instantly lose bargained-for contractual protections,” and employers must sustain “administrative and labor costs associated with issuing notices that noncompete agreements cannot be enforced and changing company policies.”
These harms have no adequate remedy at law.
The public interest supports preliminary relief.
Three years ago, President Biden encouraged the FTC to ban noncompetes. The FT proposed a rule in 2023, implemented a final rule in April 2024, and then postponed the effective date for four more months. According to the Chamber, this timeline establishes that time is not of the essence when implementing the noncompete ban. So, an injunction serves the public interest by ensuring that the Rule gets full judicial review before upheaval ensues and it takes effect.
That’s the Chamber’s argument in a nutshell. When the FTC responds, I’ll also break it down for you.