"Trade Secret Infringement" US Chamber of Commerce Sues FTC Over Ban on Non-Compete Clauses Removal

"Authority to Abolish Non-Compete Agreements Should Belong to Congress, Not FTC"

The U.S. Chamber of Commerce has filed a lawsuit against the Federal Trade Commission (FTC) to abolish non-compete agreements in employment contracts that prevent workers from moving to competitors or starting their own businesses.

Lina Khan, Chair of the FTC

On the 24th (local time), the U.S. Chamber of Commerce stated, "This FTC action violates state and federal laws that have been in place for centuries," and filed a lawsuit against the FTC in the Texas federal court.

The Chamber argued, "Considering the economic and social importance of nationwide non-compete prohibitions, the decision-making authority should be Congress, not the FTC," and claimed, "Non-compete agreements are essential to protect company internal secrets and proprietary information." It added, "Companies will face significant legal costs as they rely on other means to protect existing investments," and "The economy is expected to suffer as startups and small businesses will no longer be able to prevent large corporations from hiring top employees and accessing trade secrets."

This follows the FTC's ban on non-compete agreements announced the previous day. The ban was justified on the grounds that non-compete agreements restrict workers' job mobility, limit wage increases and entrepreneurship, and increase companies' costs of recruiting talent. Under the new regulation, labor contracts may not include non-compete clauses that prohibit moving to or starting a business in the same industry. Employers must notify employees that existing contracts are invalid. This measure will enable 30 million workers, or 18% of the U.S. workforce currently bound by non-compete agreements, to move freely starting this October. According to the FTC, workers' incomes are expected to increase by $488 billion over the next decade, and 8,500 new startups are projected to emerge.

Regarding the Chamber of Commerce lawsuit, the FTC maintains that companies should rely on other protective measures, such as non-disclosure agreements, rather than non-compete agreements.

In response to claims that the ban on non-compete agreements exceeds its authority, the FTC stated, "Our legal authority is very clear," and added, "Addressing the issue of non-compete agreements that suppress Americans' economic freedom is central to our mission, and we expect to prevail in court."

It is analyzed that this FTC action reflects the intentions of President Joe Biden, who is seeking re-election in November. President Biden, who supports pro-labor policies, announced in his State of the Union address last February that he would ban non-compete agreements to protect workers' rights.