Yesterday, TechFreedom filed three separate comments in response to the Federal Trade Commission’s (FTC) request for public comment on a proposed rule to ban non-compete clauses. Our comments explain the legally doubtful authority of the Commission to issue substantive rules governing Unfair Methods of Competition (UMC), the effects of the proposed rule on intellectual property if that rule should be enacted, and a proposal for a more limited rulemaking that would be consistent with the Commission’s authority.

“The FTC lacks authority to make competition rules with the force of law,” said Berin Szóka, President of TechFreedom (comments). “In 1914, Congress entrusted the FTC with an exceptionally broad legal standard, unfairness, and uniquely vast jurisdiction over nearly the entire economy. If the FTC had the authority it claims, it would be a second national legislature. The legal arguments for this power are remarkably thin. The NPRM does not explain this theory. The majority simply asserts that the 1973 decision in National Petroleum Refiners resolved the question. But no modern court would conclude that Section 6(g) empowers the FTC to make legislative as well as procedural rules. That decision rested on assumptions about intent and policy judgments about the benefits of rulemaking over adjudication. Today, courts would focus on the text of the statute. If Congress had intended the FTC to make rules with the force of law, it would have specified sanctions for violating such rules, as it did in the Communications Act. Instead, the 1914 Act authorized only injunctive relief, because the Act contemplated that the FTC would adjudicate, not legislate, unfairness.”

“The FTC’s aggressive reading of Section 6(g) isn’t just incorrect; it’s likely unconstitutional,” said Corbin Barthold, Internet Policy Counsel at TechFreedom (comments). “The Supreme Court recently reminded agencies that, under the separation of powers, they need clear statutory authority from Congress to resolve major policy questions. The FTC’s plan to ban noncompete clauses plainly violates this ‘major questions’ principle. Moreover, the Court seems ready to revive the nondelegation rule. That could lead the justices not only to reject the FTC’s reinterpretation of Section 6(g), but to rein in the FTC’s Section 5 authority more generally.”

“A blanket ban on non-competes would significantly harm the tech sector and has no empirical basis,” said James E. Dunstan, TechFreedom’s General Counsel (comments). “The NPRM fails to consider the rights of employers to protect their intellectual property, a right grounded in the U.S. Constitution. Without cost-effective tools, employers will be under threat from more than just former employees. Foreign adversaries could pick off employees from the U.S. tech sector and extract from them the intellectual property of their former employers. Moreover, the FTC has undertaken little, if any, analysis of how such a ban could actually harm workers. The lack of empirical study of the impact of non-competes—especially banning them completely—has been noted by multiple expert commentators.” 

“The Commission should pursue a more narrow path, focused on unfair or deceptive acts or practices (UDAP),” said Bilal Sayyed, TechFreedom Senior Competition Counsel, former Director of the FTC’s Office of Policy Planning and a 25-year veteran antitrust lawyer (comments). “While this approach is not without challenges—in particular the requirement of a showing of consumer injury or consumer harm—the Commission has, in the past, extended the application of its UDAP authority to conduct that affects entities or person beyond a narrow definition of consumer. Such a rule would not preclude case-by-case enforcement actions alleging that non-compete clauses were adopted to limit or prevent competition, where the facts warranted that conclusion.”

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About TechFreedom: 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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