Today, the Federal Trade Commission (FTC) approved a rule banning most employers from using non-compete agreements. Last April, TechFreedom filed three separate comments on this proceeding. The first explained that the Commission lacks the authority to issue such a rule, or indeed any substantive rules governing Unfair Methods of Competition (UMC). The second comment described the negative effects of the proposed rule on intellectual property, and the third proposed a more limited rulemaking that would be consistent with the Commission’s actual authority. 

“The FTC lacks UMC rulemaking authority,” said Berin Szóka, President of TechFreedom. “This proceeding presumes that Section 6(g) of the FTC Act authorizes rules defining unfair methods of competition. The legal arguments for this presumption are remarkably thin. Reading Section 6(g) to authorize such rulemakings would broadly flout both the Act’s legislative context and the Constitution’s separation of powers. On the Commission’s reading of the law, Congress would have created an unaccountable mini-legislature—without anyone noticing for over half a century. The Commission asserts that a 1973 court of appeals decision, National Petroleum Refiners, resolved the question. But no modern court would interpret the case in the way that court did. That decision rested on assumptions about intent and on policy judgments about the benefits of rulemaking over adjudication. Today, courts would focus on the text of the statute.”

“Moreover, the courts will expect a clear statement of authority from Congress before the FTC may decide major policy questions,” Szóka continued. “The stakes here are no smaller than in other cases where an agency has lost under the major questions rule. The FTC estimates that banning non-competes will increase patent rates 11-19% annually and wages by $400-$488 billion over the next decade. Indeed, non-competes are just one of an endless range of major questions the FTC could decide if Section 6(g) truly did empower it to act as a second national legislature.”

“No one can seriously expect this Supreme Court to uphold the FTCʼs interpretation,” Szóka concluded. “The FTC may lose not only under modern textualist analysis and the major questions doctrine, but also because its reading of the statute assumes that Congress delegated vast lawmaking powers to the FTC without clear limiting principles. Such a decision could invite courts to curtail the FTCʼs powers under Section 5 more generally. Thus, the FTC could well wind up with less power than it started with.”

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TechFreedom is a nonprofit, nonpartisan technology policy think tank. We work to chart a path forward for policymakers towards a bright future where technology enhances freedom, and freedom enhances technology.

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