PHILADELPHIA (Legal Newsline) - The Federal Trade Commission's conclusion that noncompete agreements harms employees was no surprise, industry groups are telling the Philadelphia federal judge who has a chance to block the FTC's new rule banning them.
That's because the FTC "cherrypicked" the data on which it relied to support its new rule, 11 groups that have been allowed to participate as friends of the court argue argue in their recent brief. They include the National Retail Federation, the National Federation of Independent Business and the Associated Builders and Contractors.
The rule, part of a flurry of Biden Administration changes being made to American businesses without Congressional approval, bans noncompete agreements and has been challenged by ATS Tree Services in Pennsylvania federal court.
ATS's argument is that the FTC is exceeding its authority. The amicus brief of industry groups argues the FTC is wrong, anyway.
"(The rule) is based on cherrypicked data that predictably supports the result desired by the Commission's majority, while ignoring or summarily dismissing data that contradicts its preferred policy outcome," the brief says.
The groups call the FTC's rationale "incoherent," among other insults.
"In other words, despite spending more than a year crafting the Final Rule after posting the Notice of Proposed Rulemaking, the best the Commission could manufacture to support its predetermined outcome is a collection of poorly reasoned, self-serving and aggrandizing conclusions," the brief says.
The FTC made the following claims against noncompete agreements: They are regularly used for low-wage workers, they reduce wages, they stifle new business and ideas, employees are coerced into signing them and they harm consumers.
In response, the industry groups say low-wage workers are almost never subject to noncompete agreements and that their members discourage that practice.
They claim the FTC uses anecdotal evidence rather than empirical. As for lowering wages, the FTC ignored research that showed workers with noncompetes are offered higher wages and more training than those who do not.
"(E)mployees are often asked to voluntarily sign noncompetes in connection with long term incentive plans, as consideration for discretionary bonuses, or in connection with promotions or generous separation packages," the brief says.
"These not only provide consideration for the noncompete, but can be very substantial, which obviously increases the recipient's overall compensation."
And if noncompetes stifle new ideas, most of the innovation in America would come from California, North Dakota and Oklahoma - the first three states to prohibit them, the brief says.
"To be sure, banning noncompetes nationwide would likely weaken competition, in that new market entrants would be at enhanced risk of having key employees and critical information, techniques and strategies stripped from them by well-heeled large companies," the brief says.
"One might think the Commission would want to encourage small business formation of this sort."
ATS Tree Services has asked Judge Kelley Hodge for a preliminary injunction against the rule. Represented by Pacific Legal Foundation, ATS says the FTC is ignoring the limitations on its authority.
A 3-2 vote by FTC commissioners approved the noncompete rule and was lauded by FTC chair Lina Khan, who has been a target of criticism over her activist approach to the role.
She sued Amazon under under antitrust laws for keeping prices low for its customers. Amazon requires merchants on its platform to charge prices equal to or lower what they charge elsewhere. She then admitted she buys diapers on Amazon.
In her career-making 2017 academic article attacking Amazon’s practices, she acknowledged it would be necessary to “revise antitrust law” to go after Amazon. She's also sued Amazon for allegedly tricking shoppers into enrolling in its Prime program, with the company claiming she is distorting federal law without warning.
She's filed an antitrust lawsuit against Facebook owner Meta, which argues Khan can't actually show what market it has allegedly monopolized. And MGM Resorts says she is abusing her authority with a probe into a cyberattack, given that she will not recuse herself from it even though she is a potential civil plaintiff and witness.
The practice of rulemaking by Biden's agency chiefs has increasingly irritated groups nationwide. It - if the rules are allowed to stand - allows his administration to implement new policies that Democrats in Congress couldn't gain support for.
The U.S. Chamber has sued the Consumer Financial Protection Bureau over a rule limiting late fees on credit card payments to $8, and a House committee has voted to repeal it, though support from the Democrat-led Senate is unlikely.
House Financial Services Committee chair Andy Barr claims the CFPB has gone "rogue," and a trade group for lenders warns that new rules targeting "risky" loans does not include a description of what those would be.
And Biden's Labor Department, which is headed by a woman whose appointment to secretary was never confirmed by the Senate, has changed the rules for overtime pay and whether independent contractors are actually company employees entitled to benefits.
As for the noncompete rule from the FTC, ATS Tree Services claims it will hurt it and other small businesses who need to train their workers without fear it will come back to bite them.