U.S. ban on worker non-competes faces tough legal battle By Reuters

Daniel Wisner

(Reuters) – The U.S. Federal Trade Commission’s ban on “non-compete” agreements that workers commonly sign is likely to be vulnerable to legal challenges, experts said. That’s because some courts are becoming increasingly skeptical of federal agencies’ authority to adopt broad rules.

In unveiling the rules on Tuesday, the commission said employers’ agreements not to join or launch competitors suppress workers’ wages and hinder their mobility and job opportunities. The agency said about 30 million people, or 20% of U.S. workers, have signed non-compete clauses.

Tax services firm Ryan LLC and a trade group led by the U.S. Chamber of Commerce have already filed two lawsuits arguing that the FTC, which enforces antitrust laws, lacks authority to determine business practices that constitute unfair competition and should be banned.

Late Wednesday, the chamber decided to block the rule from going into effect pending the outcome of the lawsuit.

These issues are likely to delay implementation of the regulations, which are due to take effect in August. Ultimately, because the FTC has taken a new and unprecedented position regarding its rulemaking authority, they may doom the bill, several lawyers and other experts said.

The FTC’s regulations may not be effective because they address “significant issues” with broad implications for the U.S. economy. The U.S. Supreme Court said the agency could only do this with explicit authorization from Congress.

Jeremy Merkelson, a partner at Davis Wright Tremaine, a Washington, D.C.-based law firm that represents employers, said the FTC has no such authority and Congress itself has rejected noncompete proposals.

“I think the Supreme Court has everything it needs to rule that the FTC’s sweeping actions were not authorized by the legislature,” Merkelson said.

The committee will also have to contend with conservative judges who have shown a willingness to block major government policies and rein in the power of federal agencies, including the Supreme Court’s conservative majority.

Gregory Hoff, director of labor and employment policy at the business-backed HR Policy Association, said the Tyler, Texas, court in which the chamber filed the lawsuit was “very likely to block questionable Biden administration rulemaking.” “It was an effective firewall,” he said.

The court’s sole judge, J. Campbell Barker, was appointed by Republican former President Donald Trump. Ryan’s case was assigned to U.S. District Judge Ada Brown in Dallas, another Trump appointee. And any appeals will be heard by the U.S. Court of Appeals for the Fifth Circuit, based in New Orleans. Twelve of the 17 judges here were appointed by Republican presidents.

The FTC said in a statement Wednesday about the lawsuit that federal law “makes clear” that the agency has broad rulemaking authority to address anticompetitive conduct.

The commission also defended that authority in the 570-page rule itself, which upheld an agency rule requiring fuel distributors to determine the “octane rating” of gasoline and mail-order companies to ensure they deliver products within the advertised range. It relied heavily on U.S. Court of Appeals decisions from 1973 and 1985. Time frame.

But those provisions are not as comprehensive as noncompete laws that apply to all sectors of the economy, and the Fifth Circuit is not obligated to follow prior rulings from other appellate courts, said Damian Cavaleri, who represents employers and attorneys in New York. worker.

“It’s very likely that the 5th Circuit will be divisive and go all the way to the Supreme Court, and I don’t expect (the court’s conservative majority) to be reluctant to address this issue,” he said.