Yesterday, TechFreedom filed comments on two petitions filed by the Open Markets Institute (OMI) asking the Federal Trade Commission to issue rules to “Prohibit Worker Non-Compete Clauses” and “Prohibit Exclusionary Contracts.” TechFreedom’s comments explain that such prohibitions would not only be unsupported by the evidence and harmful to workers, but also outside the scope of the FTC’s legal authority.

“The FTC lacks authority to issue binding rules,” said Berin Szóka, President of TechFreedom. “Granting such such legislative power would have violated the non-delegation doctrine as universally understood in 1914 — an understanding the Supreme Court has signaled it will return to. It is absurd to think that Congress buried such a constitutional revolution without debate and in 15 words of such an ancillary provision — yet detailed so carefully the case-by-case adjudication by which the agency would enforce the law. Such an interpretation would also violate the convention Congress followed for generations: signalling that an agency should make substantive rules by authorizing sanctions for violations of those rules. The FTC Act does not even authorize sanctions for violations of the statute itself, only cease-and-desist orders. If the FTC proceeds in issuing substantive rules, it will find that the 1973 case it invokes, National Petroleum Refiners, is a pile of sand.”

“Non-compete agreements are creatures of state law and rest on over 500 years of common law jurisprudence determining their ‘reasonableness,’” concluded Jim Dunstan, TechFreedom General Counsel. “With scant and conflicting evidence as to whether non-competes damage the labor market as a whole, the FTC should tread lightly before attempting to vastly alter the entire economy. Especially in the tech sector, which is fueled by intellectual property, a per se prohibition on non-compete agreements would rob employees of higher wages and the upside potential of equity and stock options that they receive in exchange for agreeing to not compete with their employers for a short period of time.”

“Rather than have the FTC (and presumably the courts) grapple with the actual competitive effects of exclusive agreements, some want the FTC to ban their use by successful firms,” explained Bilal Sayyed, TechFreedom Senior Competition Counsel.Vertical agreements between upstream and downstream firms have clear efficiency benefits. Before the FTC proposes such a rule, it should make public the facts and analysis of the likely scores of investigations into vertical arrangements it has done over the last 30-40 years. The 2006 Commentary on the Horizontal Merger Guidelines and the 2020 Commentary on Vertical Merger Enforcement (since withdrawn) are excellent models of transparency into the Commission’s work. That model should be followed before the Commission tries to extend its reach into efficient contracts. Like democracy, good antitrust enforcement dies in darkness.” 

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We can be reached for comment at media@techfreedom.org. Read our comments on the FTC’s lack of authority to make binding rules on non-competes, on exclusivity, and on the FTC’s lack of authority. Read our related work, including:

About TechFreedom:

TechFreedom is a non-profit, non-partisan 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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