Before a national ban on noncompete clauses can protect advisors who jump ship for rival firms, it will have to survive at least one court challenge.
The U.S. Chamber of Commerce and other business groups made good Wednesday on their promise to sue the Federal Trade Commission over the ban on noncompete contract provisions passed the previous day. Upon going into effect in August, the rule would nullify most contract clauses prohibiting employees at one firm for taking a job at a rival within a certain amount of time.
The chamber’s lawsuit argues the FTC has greatly exceeded its authority, noting noncompete clauses were in use well before the agency’s founding in 1914. The chamber contends in a statement that, “until now no one has suggested that they are illegal.”
When the ban on noncompetes was still in the proposal stages, it drew opposition from advisory and brokerage firms, as well as from the Financial Services Institute and other representatives of the wealth management industry.
Lawyers and others say the ban is unlikely to apply to the nonsolicitation clauses that are far more common among wealth managers.
Unlike noncompete clauses that prohibit advisors from working for competitors, nonsolicits ban them from reaching out to former clients for a set period of time.
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