(Reuters) – The Federal Trade Commission’s ban on “noncompete” agreements typically signed by workers is vulnerable to legal challenges, experts say, as some courts are increasingly skeptical of federal agencies’ power to adopt sweeping rules. Are.
The commission unveiled the rule on Tuesday, saying that employers’ agreements not to join competitors or start rival businesses depress workers’ wages and hinder their mobility and job opportunities. About 30 million people, or 20% of American workers, have signed non-competes, the agency said.
Business groups led by the U.S. Chamber of Commerce, tax services firm Ryan LLC and a Pennsylvania tree-trimming company have already filed a lawsuit claiming that the FTC, which enforces antitrust laws, does not have the power to determine Which business practices amount to unfair competition and should be prohibited.
The chamber moved late Wednesday to block the rule from taking effect pending the outcome of its lawsuit.
Those challenges are likely to delay implementation of the rule, which is scheduled to take effect in August. Many lawyers and other experts said that in the end, they could doom the measure, as the FTC presents a unique position with respect to its rulemaking powers.
Lawyers said the FTC rule could also be invalid because it addresses a “major question” with broad implications for the US economy, which the US Supreme Court has said agencies can only do with express authorization from Congress. Can only work.
Jeremy Merkelson, a partner at the law firm Davis Wright Tremaine in Washington, who represents employers, said the FTC lacks that authority, and Congress itself has refused to pass proposed restrictions on noncompetes.
“I think the Supreme Court needs to decide that the FTC’s major changes were not given the green light by the legislative branch,” Mr. Merkelson said.
The FTC will also have to contend with a series of conservative judges who have shown a willingness to block major government policies and rein in the power of federal agencies, including the conservative supermajority of the Supreme Court.
The court in Tyler, Texas, where the chamber has filed its lawsuit, has been “a very effective firewall against questionable Biden administration rule-making,” said Gregory Hoff, director of labor and employment policy at the business-backed HR Policy Association.
The court’s sole justice, J. Campbell Barker, is a Republican appointee of former President Donald Trump. Ryan’s case has been assigned to another Trump appointee, U.S. District Judge Ada Brown in Dallas. And any appeals in those cases will be heard by the New Orleans-based 5th U.S. Circuit Court of Appeals, where 12 of the 17 judges were appointed by Republican presidents.
The FTC said in a statement responding to the lawsuits on Wednesday that federal law is “absolutely clear” that the agency has broad rulemaking powers to address anti-competitive conduct.
The Commission also defended that right in a 570-page rulemaking, relying heavily on 1973 and 1985 U.S. appeals court decisions that upheld agency rules requiring fuel distributors to set gasoline’s “octane rating” and Mail order companies are required to ship products within the advertised time frame. time limit.
But those rules were not as broad as non-compete restrictions, which touch every sector of the economy, and the 5th Circuit is not bound to follow prior decisions of other appeals courts, said Damien Cavallari, a New York-based lawyer who represents employers. Represented and workers.
“It’s likely the 5th Circuit will create a split and it will go all the way to the Supreme Court, and I would not expect (the court’s conservative majority) to shy away from addressing this issue,” he said.
