Top Senate Democrats press Chamber of Commerce on threat to sue FTC over noncompete clause ban

Key Points
  • Sens. Elizabeth Warren, D-Mass., and Sheldon Whitehouse, D-R.I., pressed the U.S. Chamber of Commerce on its threat to sue the FTC over a proposal to ban noncompete clauses.
  • Warren and Whitehouse pushed back against the threat, arguing the ban will increase competition for workers and businesses.
  • The Chamber, the largest U.S. business advocacy organization, contends the FTC lacks the authority to ban the agreements, which can prevent workers from taking a job at a company's competitor for a set period of time.
Signage is seen on the Chamber Of Commerce Building in the Manhattan borough of New York City, New York, U.S., April 21, 2021.
Andrew Kelly | Reuters

WASHINGTON — Two top Senate Democrats on Tuesday pressed the largest U.S. business advocacy organization on its threat to sue the Federal Trade Commission over a plan to ban noncompete clauses.

Sens. Elizabeth Warren, D-Mass., and Sheldon Whitehouse, D-R.I., requested detailed information from the U.S. Chamber of Commerce about its plan to sue the FTC to halt the proposal. The massive lobbying organization represents about 3 million businesses.

"The Chamber's description of noncompete agreements as a tool for 'fostering innovation and preserving competition' is demonstrably false, and represents exactly the kind of Washington insider doublespeak that big business has been using for years to justify anti-worker and anticonsumer policies," the letter from the senators addressed to Chamber of Commerce CEO Suzanne Clark states.

"Noncompete agreements are legal contracts prohibiting workers from taking similar positions with new employers or starting their own businesses," Warren, who sits on the Senate Banking Committee, and Whitehouse, a member of the Senate Finance and Budget committees, wrote.

The FTC has said that noncompete clauses, which affect 1 in 5 American workers, violate the agency's fair trade laws by preventing workers from starting a job at a competing business until a certain amount of time has passed. The agency has called the agreements, usually entered into when workers start a new job at a company, exploitative.

The new rule that would bar employers from imposing noncompete clauses could increase workers' wages by $300 billion a year, according to the FTC.

Noncompete clauses are already banned in at least 10 states. A ban in Oregon helped raise wages for lower wage workers by 2% to 3%, according to a 2021 study.

But the Chamber has called the proposal "blatantly unlawful." In a statement released shortly after the FTC announced the proposal in early January, the organization argued Congress has not given the agency the authority to make the rule change.

Clark announced in January that the Chamber will sue to oppose the proposed regulation. The Chamber CEO reiterated her position several days later in an op-ed in The Wall Street Journal.

In the op-ed, Clark said the FTC's intent to trigger Section 5 of the FTC Act to ban unfair methods of competition undermines its commitment to "preserving innovation in a free market." As written, Section 5 prohibits ''unfair or deceptive acts or practices in or affecting commerce'' for everyone engaged in commerce, including banks, according to the Consumer Compliance Handbook.

Warren and Whitehouse's letter to Clark challenged that view.

"This assertion is absurd," the senators said. "These noncompetes do nothing but stifle competition for workers, businesses seeking to hire them, and entrepreneurs starting their own businesses."

To justify the agency's oversight, the senators referenced a November 2022 policy statement on Section 5 that identifies the FTC's authority over "coercive, exploitative, collusive, abusive, deceptive, predatory" conduct that goes beyond competition.

Warren and Whitehouse also contended that banning noncompete clauses is actually better for businesses. They wrote that the agreements depress wages, prevent market growth and force employees into worse jobs or out of the workforce altogether.

"Notwithstanding the Chamber's doomsday predictions and threats to sue to overturn the law, the FTC's proposed rule would help workers, small businesses, and the entire economy, and the agency has the legal right to impose this rule," the senators said.

Warren and Whitehouse issued a March 13 deadline for the Chamber to provide details on its decision to oppose the noncompete rule, outline any fundraisers who have contributed to its efforts to fight the proposal and detail which of its members use noncompete agreements.

The Chamber of Commerce referred CNBC to a letter dated Thursday responding to the senators.

"The text, structure, and history of the Federal Trade Commission Act and associated statutes all confirm that Congress never granted the FTC the authority to issue a competition rule, particularly one as sweeping as this," the letter states. "Moreover, numerous constitutional doctrines require that Congress speak clearly, and provide intelligible guidance, if it wishes to assign a decision of such vast significance to a federal agency, particularly when that decision would disrupt an area of traditional state regulation."