FTC is sued by business groups over its ban on noncompete agreements, which may delay enforcement

Less than 24 hours after a final rule banning employers from using noncompete agreements in the United States was issued by the Federal Trade Commission, the US Chamber of Commerce and the Business Roundtable filed a lawsuit against the agency in federal court. Another lawsuit was filed by business tax services firm Ryan. More lawsuits may be filed in the coming weeks. The US Chamber argues that the FTC exceeded its administrative authority and contests the agency’s ability to issue and enforce the noncompete ban without a clear legislative mandate from Congress. The Chamber, along with other plaintiffs, seeks a stay or preliminary injunction against the rule. The effective date of the rule could be delayed if the courts grant a stay or injunction. Existing noncompete agreements would become unenforceable if and when the rule takes effect, except for existing agreements for senior executives. While the cases are being litigated, employers are advised to take a wait-and-see approach regarding the FTC rule. Some employees, now aware of the FTC’s action, may resist new noncompete agreements issued by employers during the litigation. There is a possibility that the challenge to the rule could be upheld by lower courts, resulting in a longer timeline for the invalidation of noncompete agreements.