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Thursday, March 28, 2024
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FTC Oversteps in Banning Noncompetes

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The Federal Trade Commission released a proposed rule banning employer noncompete clauses in all employment circumstances. Image for illustration purposes
The Federal Trade Commission released a proposed rule banning employer noncompete clauses in all employment circumstances. Image for illustration purposes

Texas Border Business

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US Chamber of Commerce

The Federal Trade Commission released a proposed rule banning employer noncompete clauses in all employment circumstances. This unprecedented attempt overturns well-established state laws which have long governed their use.

Why it matters: Noncompete clauses are important when it comes to fostering innovation and promoting competition. Businesses may use them for a variety of reasons, such as limiting dissemination of trade secrets, access to sensitive information, or ensuring return on investments made in employee training.

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Go deeper: The Federal Trade Commission lacks any statutory authority that even comes close to giving it the authority it claims to propose such a rule.

·  The only rulemaking authority granted to the agency by Congress is limited and applies to unfair and deceptive acts and practices through specific procedures commonly referred to as “Magnuson-Moss authority”.

·  Congress has not authorized the FTC to engage in competition rulemaking. Instead it empowers the FTC to exclusively undertake case-by-case administrative adjudication of competition cases to shape the law.

Bottom line: “Today’s actions by the Federal Trade Commission to outright ban noncompete clauses in all employer contracts is blatantly unlawful,” said Chamber Vice President Sean Heather.

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“Since the agency’s creation over 100 years ago, Congress has never delegated the FTC anything close to the authority it would need to promulgate such a competition rule. The Chamber is confident that this unlawful action will not stand.”

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