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`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
`
`CHAMBER OF COMMERCE OF THE
`UNITED STATES OF AMERICA,
`BUSINESS ROUNDTABLE, TEXAS
`ASSOCIATION OF BUSINESS, and
`LONGVIEW CHAMBER OF
`COMMERCE,
`
`Plaintiffs,
`
`v.
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`FEDERAL TRADE COMMISSION and
`LINA KHAN, in her official capacity,
`
`Defendants.
`
`CASE NO. 6:24-cv-00148
`
`COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
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`
`
`UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
`
`CHAMBER OF COMMERCE OF THE
`UNITED STATES OF AMERICA,
`BUSINESS ROUNDTABLE, TEXAS
`ASSOCIATION OF BUSINESS, and
`LONGVIEW CHAMBER OF
`COMMERCE,
`
`Plaintiffs,
`
`v.
`
`FEDERAL TRADE COMMISSION and
`LINA KHAN, in her official capacity,
`
`Defendants.
`
`CASE NO. 6:24-cv-00148
`
`COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
`
`
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`Case 6:24-cv-00148-JCB Document 1 Filed 04/24/24 Page 2 of 52 PageID #: 2
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`
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`Plaintiffs the Chamber of Commerce of the United States of America, Business
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`Roundtable, Texas Association of Business, and Longview Chamber of Commerce, by and
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`through undersigned counsel, bring this complaint for declaratory and injunctive relief
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`against Defendants Federal Trade Commission and Chair Lina Khan, alleging as follows:
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`INTRODUCTION
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`1.
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`The true strength of a company lies in its people. Recognizing this, many
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`businesses invest considerable sums in training and developing their employees to
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`maximize their potential and to hone their skills. And particularly for companies in highly
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`competitive and innovative industries, those same employees serve as the guardians of
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`businesses’ second most valuable asset, which is the highly sensitive and proprietary
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`information that allows them to succeed.
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`2.
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`Having invested in their people and entrusted them with valuable company
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`secrets, businesses have strong interests in preventing others from free-riding on those
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`investments or gaining improper access to competitive, confidential information. For
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`centuries, businesses throughout the United States have relied on reasonable noncompete
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`agreements to protect those critical interests.
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`3.
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`Many businesses continue to rely on targeted noncompete agreements for
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`these same reasons today. Those agreements typically require that an employee agree, as
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`a condition of employment or in exchange for compensation, that if he decides to leave the
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`company, he will not work for the employer’s competitors for a limited period of time
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`thereafter. These agreements benefit employers and workers alike—the employer
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`protects its workforce investments and sensitive information, and the worker benefits from
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`1
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`increased training, access to more information, and an opportunity to bargain for higher
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`pay.
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`4.
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`Policymakers and courts have long recognized the benefits of noncompete
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`agreements. At the same time, they have also recognized that noncompetes may pose an
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`unreasonable burden for some types of workers and may be inappropriately restrictive—
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`for instance, by preventing a worker from accepting employment with a business hundreds
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`of miles away or many years after leaving a job. To address those concerns, each State has
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`developed its own body of law to determine when noncompete agreements are enforceable,
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`and when they go too far. And States are also actively experimenting in this area. In recent
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`years, a number of States have enacted laws that either restrict or expand the enforceability
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`of noncompetes.
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`5.
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`Noncompetes have never been regulated at the federal level. Although some
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`Members of Congress have recently taken an interest in the issue and proposed legislation
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`that would establish national rules for noncompete agreements, those proposals have never
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`received a Committee vote, let alone a vote from either House of Congress. Without such
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`authorizing legislation, federal agencies have not previously sought to play a role in
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`regulating noncompete agreements on a nationwide basis.
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`6.
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`That all changed in January 2023, when the Federal Trade Commission
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`proposed a rule that would enact a total nationwide ban on worker noncompete agreements.
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`See Fed. Trade Comm’n, Non-Compete Clause Rule, 88 Fed. Reg. 3482 (Jan. 19, 2023). As
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`authority for that rule, the Commission relied on an obscure and rarely invoked provision
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`of the Federal Trade Commission Act, claiming that it authorized the agency to issue rules
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`2
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`outlawing “unfair methods of competition.” On April 23, 2024, the Commission voted to
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`finalize that rule. See Fed. Trade Comm’n, Non-Compete Clause Rule, RIN2084-AB74
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`(Apr. 23, 2024) (Final Rule).
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`7.
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`The Commission’s Noncompete Rule is striking in its breadth: it prohibits
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`any contractual provision that “penalizes a worker for, or functions to prevent a worker
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`from,” “seeking or accepting work” or “operating a business” in the United States, Final
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`Rule, at 561-562, a definition that sweeps in many bargained-for contracts that pose no
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`threat to competition—such as a senior executive’s agreement to receive millions in
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`compensation in exchange for not working for her former employer’s competitors, id. at 73.
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`The rule defines “worker” to include both employees and independent contractors, and,
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`going forward, allows no distinction based on the seniority of the worker covered, the nature
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`of the information protected, or the bargaining power of the parties involved. Id. at 563-
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`564.
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`8.
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`The rule goes even further than that. Beyond making virtually all
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`noncompetes illegal going forward, the Noncompete Rule also purports to retroactively
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`invalidate roughly tens of millions of existing agreements. See Final Rule, at 344-345. As
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`a result, businesses that bargained for noncompetes will lose the protections of those
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`agreements—even if they already held up their end of the bargain.
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`9.
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`By invalidating existing noncompete agreements and prohibiting businesses
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`and their workers from ever entering into such agreements going forward, the rule will
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`force businesses all over the country—including in this District—to turn to inadequate and
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`expensive alternatives to protect their confidential information, such as nondisclosure
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`3
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`agreements and trade-secret lawsuits. And many workers, including highly-skilled experts
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`and executives, will be unable to bargain for increased compensation in return for a
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`noncompete agreement.
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`10.
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`The Commission’s astounding assertion of power breaks with centuries of
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`state and federal law and rests on novel claims of authority by the Commission. From the
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`Founding forward, States have always regulated noncompete agreements. And prior to
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`January 2023, the Commission had never taken the position that individual noncompete
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`agreements were “unfair methods of competition” under the FTC Act, 15 U.S.C. § 45(a)(1).
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`In 2021, however, President Biden issued an Executive Order calling on the Commission to
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`“exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission
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`Act to curtail the unfair use of non-compete clauses and other clauses or agreements that
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`may unfairly limit worker mobility.” Exec. Order No. 14,036, 86 Fed. Reg. 36,987, 36,992
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`(July 9, 2021). Shortly after that Order, the Commission began soliciting comments and
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`holding public workshops to carry out the President’s political directive.
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`11.
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`Then in November 2022, the Commission issued a radical new Policy
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`Statement regarding its authority under Section 5 of the FTC Act—one that would
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`ultimately clear the path for its nationwide regulation of noncompete agreements. See Fed.
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`Trade Comm’n, Policy Statement Regarding the Scope of Unfair Methods of Competition
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`6, 8-9 (Nov. 10, 2022) (Section 5 Policy Statement). In Section 5, Congress “declared
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`unlawful” “[u]nfair methods of competition.” 15 U.S.C. § 45(a)(1). Decades of bipartisan
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`enforcement policy had interpreted Section 5 to prohibit only practices that cause actual
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`harm to competition and are not outweighed by procompetitive justifications. That
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`4
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`guidance aligned with the Commission’s decades-long practice of challenging alleged
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`“unfair methods of competition” in individual enforcement proceedings, which turned on
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`the facts of the particular case. But the Commission’s Section 5 Policy Statement, adopted
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`on a partisan basis over a vigorous dissent by Commissioner Wilson, abandoned that
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`approach and decreed that the Commission may punish private businesses for any conduct
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`that violates “not only ‘the letter,’ but also ‘the spirit’ of the antitrust laws.” Section 5 Policy
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`Statement at 6. As Commissioner Wilson explained in her dissent, the Section 5 Policy
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`Statement amounted to an assertion that a majority of the Commission may declare conduct
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`unlawful based on its own political or policy preferences, without any meaningful guardrails
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`on the agency’s power. Dissenting Statement of Commissioner Christine S. Wilson
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`Regarding the “Policy Statement Regarding the Scope of Unfair Methods of Competition,”
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`7-8 (Nov. 10, 2022).
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`12.
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`The Commission now advances an additional and equally novel claim of
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`authority: the power to issue substantive, binding regulations prohibiting “unfair methods
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`of competition” under Section 6(g) of the FTC Act. Section 6 authorizes the Commission to
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`“from time to time classify corporations and . . . to make rules and regulations for the
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`purpose of carrying out the provisions” of the Act. 15 U.S.C. § 46. Although Section 6(g)
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`has been part of the FTC Act since it was first enacted in 1914, the Commission has never
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`enforced a binding regulation to broadly proscribe “unfair methods of competition”
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`standing alone, Final Rule, at 25-26—and has often taken the position that it lacks authority
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`to issue substantive rules at all. See National Petroleum Refiners Ass’n v. Fed. Trade
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`Comm’n, 482 F.2d 672, 693 (D.C. Cir. 1973) (“[T]he agency itself did not assert the power
`
`5
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`to promulgate substantive rules until 1962 and indeed indicated intermittently before that
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`time that it lacked such power.”); see generally Maureen Ohlhausen & Ben Rossen, Dead
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`End Road: National Petroleum Refiners Association and FTC ‘Unfair Methods of
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`Competition’ Rulemaking, Truth on the Market (July 13, 2022). Although the Commission
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`briefly tried to promulgate rules implementing Section 5 in the 1960s and 1970s, see Final
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`Rule, at 25-26, the Commission has not claimed the authority to make rules regarding
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`“unfair methods of competition” for the last half century. In 1975, Congress expressly
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`authorized the agency to issue regulations regarding “unfair or deceptive acts or practices,”
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`see 15 U.S.C. § 57a(a), and did not grant similar rulemaking authority for “unfair methods
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`of competition.”
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`13.
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`Armed with its novel interpretations of Section 5 and Section 6, the
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`Commission proposed its Noncompete Rule on January 5, 2023. See Fed. Trade Comm’n,
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`Non-Compete Clause Rulemaking
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`(Jan.
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`5,
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`2023),
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`https://www.ftc.gov/legal-
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`library/browse/federal-register-notices/non-compete-clause-rulemaking; Fed. Trade
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`Comm’n, Non-Compete Clause Rule, 88 Fed. Reg. 3482 (Jan. 19, 2023). Having freed itself
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`of the need to establish actual competitive harm for each noncompete agreement, the
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`Proposed Rule called for a categorical ban on worker noncompete agreements, which the
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`Commission justified on the grounds that worker noncompete agreements were unfair to
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`all workers and were harming competition in the market for labor, goods, and services.
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`See 88 Fed. Reg. at 3485. According to the Commission, implementing a national ban on
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`worker noncompetes would increase wages throughout the economy—even though
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`research presented to the Commission as recently as 2020 explained that the economics
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`6
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`literature does not “fully understand the distribution effects of non-competes on workers”
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`and is “still far from reaching a scientific standard of concluding that noncompete
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`agreements are bad for overall welfare.” Kurt Lavetti, Effects of Non-Compete Clauses:
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`Analysis of Current Economic Literature and Topics for Future Research, Remarks at
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`the FTC Workshop on Non-Compete Clauses in the Workplace 138-140 (Jan. 9, 2020).
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`Although the Proposed Rule made passing references to the procompetitive justifications
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`for noncompete agreements, it asserted that businesses had other means to achieve their
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`objectives without noncompete agreements and that, even if they did not, the purported
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`benefits of the Commission’s ban would outweigh its immediate and measurable costs.
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`See 88 Fed. Reg. at 3528-3530. Based on that analysis, the Commission proposed banning
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`all noncompete agreements going forward and retroactively invalidating millions of
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`noncompetes that are already in place. Commissioner Wilson dissented from the Proposed
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`Rule. She explained that the Noncompete Rule would “lead to protracted litigation” as to
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`the rule’s validity “in which the Commission is unlikely to prevail.” 88 Fed. Reg. at 3540
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`(Wilson dissent). She also criticized the Commission for moving forward despite “the lack
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`of clear evidence to support” its categorical ban. Id.
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`14.
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`The Commission received more than 26,000 comments on the Proposed Rule.
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`Small businesses, tech startups, trade associations, and economists opposed it. Their
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`comments explained both that the Commission lacked the legal authority to issue a rule
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`regulating worker noncompete agreements, and that even if it had such authority, its
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`categorical ban was undermined by a large body of precedent and research demonstrating
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`that noncompete agreements often promote competition. Plaintiffs the Chamber of
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`7
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`Commerce of the United States of America and Business Roundtable also submitted
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`comments explaining the many defects in the Proposed Rule and calling on the Commission
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`to rescind or substantially revise it. See U.S. Chamber of Commerce, Comment Letter on
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`Non-Compete Clause Rule (April 17, 2023), https://www.regulations.gov/comment/FTC-
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`2023-0007-19345; Business Roundtable, Comment Letter on Non-Compete Clause Rule
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`(April 17, 2023), https://www.regulations.gov/comment/FTC-2023-0007-19341.
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`15.
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`On April 23, 2024, the Commission finalized its Noncompete Rule. Rejecting
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`the criticisms of the Proposed Rule raised during the public comment period, the final
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`Noncompete Rule is nearly identical to the Commission’s proposal: it bans noncompetes
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`nationwide regardless of whether they harm competition or are necessary to support valid
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`business interests, and, going forward, it includes no exceptions based on the worker’s
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`salary, skill set, or seniority; the type of information protected by the agreement; or the
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`context of the negotiation. The only meaningful limit the Commission adopted in the Final
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`Rule was a carve-out for existing (but not future) noncompetes involving “senior
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`executives.” Final Rule, at 564. That vague qualification appeared nowhere in the proposed
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`rule, makes little sense, and does little to mitigate the vast overbreadth of the Commission’s
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`ban.
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`16.
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`The Noncompete Rule set an effective date of 120 days from publication in
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`the Federal Register. At that point, tens of millions of workers and businesses will be bound
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`by an unprecedented regulation the Commission has no power to impose. The burdens of
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`the Noncompete Rule will be immediate and significant. Businesses will have to identify all
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`pre-existing noncompetes, many of which were bargained for as part of a broader
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`8
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`compensation package, and notify employees and former employees that their noncompetes
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`are no longer enforceable. Companies will face substantial legal costs as they are forced to
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`resort to other tools to attempt to protect their investments. Workers will lose important
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`training opportunities and will have diminished bargaining power when negotiating their
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`compensation. And the economy as a whole will suffer as start-ups and small businesses
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`are unable to prevent dominant firms from hiring their best employees and gaining access
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`to their confidential information.
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`17.
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`This Court should stop that effort in its tracks because the Commission’s
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`Noncompete Rule violates the law in numerous ways.
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`18.
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`First, the Commission lacks the authority to issue regulations proscribing
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`“unfair methods of competition.” Congress has never empowered the Commission with
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`general rulemaking authority regarding matters under its jurisdiction. On the contrary,
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`Congress has carefully limited the Commission’s authority to write regulations to a variety
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`of specific contexts, and the Commission has for decades respected those limits. Despite
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`that history, the Commission now claims that the ministerial authority provided by Section
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`6 of the FTC Act empowers it to issue any rule it deems necessary. The text, structure, and
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`history of that provision confirm that it does not support the Commission’s newfound
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`assertion of regulatory power.
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`19.
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`If there were any doubt about the Commission’s authority under Section 6, it
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`is resolved by the major-questions doctrine. The Supreme Court has repeatedly invoked
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`that doctrine in recent years to reject similar attempts by administrative agencies to take
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`unprecedented actions with vast economic and political significance based on nothing more
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`9
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`than ambiguous and ancillary statutory text—particularly where the agency has never
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`before pointed to that text as a font of regulatory power.
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`20.
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`Second, even if the Commission had any authority to issue substantive
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`regulations proscribing “unfair methods of competition,” the Noncompete Rule would still
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`be unlawful because noncompete agreements are not categorically unlawful under Section
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`5. As Commissioner Wilson explained in dissent, the Noncompete Rule “represents a
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`radical departure from hundreds of years of legal precedent that employs a fact-specific
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`inquiry” for noncompete agreements. 88 Fed. Reg. at 3540 (Wilson Dissent). Noncompete
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`agreements are widely used throughout the U.S. economy, and they have long been
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`regulated (and routinely enforced) under state law—including at the time of the FTC Act’s
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`passage and decades before. Although Members of Congress have in recent years proposed
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`legislation to regulate noncompete agreements at the federal level, those efforts have
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`uniformly failed. Each of those facts cuts against the Commission’s claim that all
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`noncompetes constitute “unfair methods of competition.” And here again, the sheer
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`economic and political significance of a nationwide noncompete ban demonstrates that this
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`is a question for Congress to decide, rather than an agency. If the Commission were right
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`that Section 5 empowers the Commission to declare an ordinary business practice unlawful
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`notwithstanding the history, precedent, and economic evidence demonstrating the
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`practice’s competitive benefits, then Section 5 would reflect a boundless and
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`unconstitutional delegation of legislative power to the Executive Branch.
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`21.
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`Third, the Noncompete Rule
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`is
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`impermissibly retroactive.
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` If the
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`Noncompete Rule goes into effect, parties that bargained for the protection afforded by a
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`10
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`noncompete agreement will no longer be able to enforce those contracts going forward,
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`even if they already upheld their obligations under the contract. In order to promulgate
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`regulations with retroactive effect, administrative agencies are required to point to clear
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`congressional authorization. Even if the FTC Act empowered the Commission to issue
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`substantive rules related to “unfair methods of competition,” it clearly does not authorize
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`retroactive rulemaking. And if the Noncompete Rule were permitted to authorize such an
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`extreme step, it would raise serious doubts under the Fifth Amendment, which has long
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`been understood to bar the federal government from retroactively disrupting settled legal
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`rights.
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`22.
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`Fourth and finally, the Noncompete Rule reflects an arbitrary and capricious
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`exercise of the Commission’s powers. The Commission’s categorical ban on virtually all
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`noncompetes amounts to a vast overhaul of the national economy, and applies to a host of
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`contracts that could not harm competition in any way. The Commission offered no research
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`to support such a categorical prohibition, instead relying on a series of studies that
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`examined the economic effects of much narrower regulations and that suffered from a
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`variety of limitations and flaws—all of which the Commission ignored. Moreover, the
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`Commission moved ahead with its across-the-board ban even though commenters offered
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`a range of superior alternatives. The Commission’s Noncompete Rule gave short shrift to
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`these alternatives and failed to meaningfully engage with the arguments against its chosen
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`policy. The Commission also badly miscalculated the costs and benefits, conducting an
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`“analysis” that illustrated the pre-determined nature of its decision.
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`11
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`23.
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`In all of these ways, the Commission’s Noncompete Rule reflects an unlawful
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`and unprecedented exercise of bureaucratic power. The Commission has no authority to
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`issue the rule, and even if it did, it has exercised that authority in a manner that flouts the
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`fundamental requirements of the APA. As a result, this Court should declare the
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`Noncompete Rule unlawful and set it aside.
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`PARTIES
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`24.
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`Plaintiff Chamber of Commerce of the United States of America (U.S.
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`Chamber) is the world’s largest business federation, with over 300,000 members, including
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`members in the Eastern District of Texas. A 501(c)(6) nonprofit headquartered in
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`Washington, D.C., the U.S. Chamber represents more than 3 million companies and
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`professional organizations of every size, in every industry sector, and from every region in
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`the United States. An important function of the U.S. Chamber is to represent the interests
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`of its members before Congress, the Executive Branch, and the courts in conjunction with
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`its mission to advocate for policies designed to help businesses create jobs and grow the
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`national economy. The U.S. Chamber has numerous members who use noncompete
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`agreements for entirely legitimate purposes and will be adversely affected by the
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`Noncompete Rule.
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`25.
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`To further its core purposes, the U.S. Chamber has challenged actions and
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`rulemaking by federal agencies. See, e.g., Chamber of Commerce v. EPA, 24-1051 (D.C.
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`Cir. 2024); Chamber of Commerce v. U.S. Dep’t of Labor, 5:17-cv-00009 (W.D. Okla. Mar.
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`11, 2024); Chamber of Commerce v. EPA, 3:23-cv-00007 (E.D. Ky. 2023).
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`12
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`26.
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`Plaintiff Business Roundtable is a 501(c)(6) non-profit association of chief
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`executive officers of America’s leading companies representing every sector of the U.S.
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`economy. These companies have employees in every state, including Texas. Business
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`Roundtable works to promote a thriving United States economy and economic opportunity
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`for all Americans by advocating for sound public policies. Business Roundtable is
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`headquartered in Washington, D.C. Many of the members of Business Roundtable are
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`CEOs of companies that have noncompete agreements and are adversely affected by the
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`Noncompete Rule.
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`27.
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`Plaintiff Texas Association of Business is the state chamber of commerce for
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`Texas and the largest general business association in the state. TAB represents members
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`companies—large and small—to create a policy, legal, and regulatory environment that
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`allows them to thrive in business.
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`28.
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`Plaintiff the Longview Chamber of Commerce represents Longview area
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`businesses. The Longview Chamber of Commerce maintains its principal place of business
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`at 410 N. Center St., Longview, Texas 75601. The Longview Chamber also has members
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`that utilize noncompete agreements and will be adversely affected by the Noncompete
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`Rule.
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`29.
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`Plaintiffs bring this action on behalf of their members to advance their
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`interests as well as the interests of the entire business community. As part of advocating
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`for their members, Plaintiffs are committed to ensuring that employers, employees, and
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`independent contractors have the opportunity to bargain for mutually beneficial
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`agreements. Specifically, Plaintiffs are concerned that the Commission’s sweeping ban on
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`13
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`worker noncompete agreements would invalidate millions of contractual provisions that
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`pose no threat to competition.
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`30.
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`The Noncompete Rule’s categorical ban on worker noncompete agreements
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`will deprive Plaintiffs’ members of the opportunity to protect their investments in research
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`and development, promote specialized workforce training, reduce free-riding by
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`competitors, and achieve many other valid and procompetitive objectives. If the
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`Noncompete Rule goes into effect, Plaintiffs’ members will suffer the immediate costs
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`associated with the inability to enforce existing noncompete agreements, and will be forced
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`to utilize less effective alternatives going forward. They may also have to take on the
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`burden of expensive nondisclosure and trade-secret litigation or decrease investment in
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`their workforce, causing long-term harm to their businesses and their employees.
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`31.
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`For all of these reasons, Plaintiffs and many of their members strongly
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`opposed the Noncompete Rule. See, e.g., Chamber of Commerce of the U.S., Comment
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`Letter
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`on
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`Non-Compete
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`Clause
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`Rule
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`(April
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`17,
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`2023),
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`https://www.regulations.gov/comment/FTC-2023-0007-19345;
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`Business Roundtable,
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`Comment
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`Letter
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`on Non-Compete
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`Clause Rule
`
`(April
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`17,
`
`2023),
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`https://www.regulations.gov/comment/FTC-2023-0007-19341.
`
`32. Defendant Federal Trade Commission is a U.S. governmental agency
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`headquartered in Washington, D.C. The Commission is subject to the Administrative
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`Procedure Act pursuant to 5 U.S.C. § 551(1).
`
`33. Defendant Lina Khan is the Chair of the Commission. She is sued in her
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`official capacity and is also subject to the APA pursuant to 5 U.S.C. § 551(1).
`
`14
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`
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`Case 6:24-cv-00148-JCB Document 1 Filed 04/24/24 Page 16 of 52 PageID #: 16
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`
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`JURISDICTION AND VENUE
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`34.
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`Plaintiffs bring this action under the Administrative Procedure Act, 5 U.S.C.
`
`§ 551 et seq. This Court has jurisdiction pursuant to 28 U.S.C. § 1331 because Plaintiffs’
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`claims arise under the Constitution of the United States and the APA. The Court has the
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`authority to grant the requested declaratory and injunctive relief under the APA, 5 U.S.C.
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`§§ 702-706, and the Declaratory Judgment Act, 28 U.S.C. §§ 2201-2202.
`
`35.
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`Plaintiffs have associational standing to bring this suit on behalf of their
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`various members. Their members are directly and adversely affected by the Noncompete
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`Rule and accordingly have standing to sue in their own right. Specifically, Plaintiffs’
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`members will be harmed by the rescission of their noncompete agreements and the inability
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`to use noncompetes to protect their confidential information and investments in the
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`workforce in the future. Those members will also incur significant compliance costs and
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`will be forced to immediately change their business practices to avoid violating the Rule.
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`The interests Plaintiffs seek to protect are germane to their purposes. Each Plaintiff
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`organization is committed to protecting the interests of its members, as well as the broader
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`business community, and regularly advocates for reforms that reduce the regulatory
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`burdens on its members. Finally, neither the claims asserted nor the declaratory and
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`injunctive relief requested requires an individual member to participate in the suit.
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`See Association of Am. Physicians & Surgeons, Inc. v. Texas Med. Bd., 627 F.3d 547, 550
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`(5th Cir. 2010) (citing Hunt v. Wash. State Apple Advert. Comm’n, 432 U.S. 333, 343 (1977)).
`
`36.
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`Venue is proper in this district pursuant to 28 U.S.C. § 1391(e) because it is
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`an action against an agency and officer of the United States, no real property is involved,
`
`15
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`
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`Case 6:24-cv-00148-JCB Document 1 Filed 04/24/24 Page 17 of 52 PageID #: 17
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`
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`and Plaintiff Longview Chamber resides in this district. Venue is proper in this division
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`because Plaintiff Longview Chamber resides in this division.
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`BACKGROUND
`
`A.
`
`The Widespread Use Of Noncompete Agreements In The U.S. Economy
`
`37. Noncompete agreements are commonplace in the economy. According to the
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`Commission’s own estimates, one-fifth of all workers in the United States are parties to
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`noncompete agreements—roughly 30 million people. See Final Rule, at 14; 88 Fed. Reg. at
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`3485.
`
`38. Noncompete agreements serve a wide range of legitimate interests.
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`Businesses use reasonable noncompete agreements to prevent the disclosure of sensitive
`
`and confidential information, to protect significant investments in specialized workforce
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`training and development, and to structure their compensation and incentive pay programs.
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`See generally Jonathan Barnett & Ted Sichelman, The Case for Noncompetes, 87 U. Chi.
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`L. Rev. 953 (2020).
`
`39. Many workers use negotiations over noncompete agreements to increase
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`their compensation and training opportunities. For instance, testimony before the
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`Commission explained that many noncompetes “have been signed as part of a negotiated
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`severance payment, which the employee is not otherwise entitled to.” Fed. Trade Comm’n,
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`Forum Examining Proposed Rule to Ban Noncompete Clauses 42 (Feb. 16, 2023)
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`(Testimony of Eric Poggemiller); see id. at 18-19 (Testimony of LeAnn Goheen). Other
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`employees bargain for “forfeiture-for-competition” agreements, which provide the
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`employee with additional compensation that will be forfeited if the employee works for a
`
`16
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`
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`Case 6:24-cv-00148-JCB Document 1 Filed 04/24/24 Page 18 of 52 PageID #: 18
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`
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`competitor. Those provisions do not restrict where an employee can work; they simply
`
`allow the former employer to stop making payments if the employee does not hold up his
`
`end of the bargain. Some firms also negotiate noncompete agreements as part of the sale
`
`of a business. These agreements prevent the seller from turning around and competing
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`with the company that just bought his business.
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`40. Economic research supports the benefits of reasonable worker noncompete
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`agreements. For example, one recent survey of the economic literature concluded that
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`“noncompetes support employers’ incentives to invest in employees’ human capital and
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`[research and development] projects that would otherwise be subject to expropriation by
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`departing employees.” Barnett & Sichelman, The Case for Noncompetes, supra, at 974.
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`Another study confirmed that, by allowing companies to protect their confidential and
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`proprietary
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`information, noncompete agreements promote workforce
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`training
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`opportunities and wage increases. See Geoffrey A. Manne & Dirk Auer, Comments of the
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`International Center for Law & Economics Regarding Contract Terms that May Harm
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`Fair Competition 10 (September 30, 2021). A recent report from the Government
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`Accountability Office, although critical of noncompetes in certain respects, acknowledged
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`studies showing that “workers in occupations that use [noncompetes] frequently are more
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`likely to receive firm-sponsored training in states with stronger [noncompete] enforcement
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`environments.” GAO, Noncompete Agreements: Use Is Widespread to Protect Business’
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`Stated Interests, Restricts Job Mobility, and May Affect Wages 34 (May 2023).
`
`17
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`Case 6:24-cv-00148-JCB Document 1 Filed 04/24/24 Page 19 of
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