Answering The $296 Billion Question: FTC's Proposed Rulemaking On Worker Non-Competes Likely To Be Found Unconstitutional

• Jurisdiction: United States,Federal
• Law Firm: Seyfarth Shaw LLP
• Subject Matter: Employment and HR, Contract of Employment, Health & Safety, Whistleblowing
• Author: Mr Daniel Hart, Jesse Coleman and Alex Meier
• Published date: 16 January 2023

As our colleagues have previously reported in this blog, on January 5, 2023, the Federal Trade Commission issued a notice of proposed rulemaking (NPRM) concerning its unprecedented effort to ban all non-compete clauses with workers and to preempt state law on the issue. The NPRM followed just one day after the FTC announced that it had reached a consent settlement with three companies for alleged unfair trade practices by imposing overly burdensome non-compete agreements.

Not surprisingly, the NPRM has sparked a surge of commentary in the legal and business communities and immediately courted controversy. The sole Republican member of the FTC, Commissioner Christine S. Wilson, issued a vigorous dissent, arguing:

The proposed Non-Compete Clause Rule represents a radical departure from hundreds of years of legal precedent that employs a fact-specific inquiry into whether a non-compete clause is unreasonable in duration and scope, given the business justification for the restriction. The Commission undertakes this radical departure despite what appears at this time to be a lack of clear evidence to support the proposed rule. What little enforcement experience the agency has with employee non-compete provisions is very recent (within the last week) and fails to demonstrate harm to consumers and competition.

Commissioner Wilson also noted that "the Commission's competition rulemaking authority itself certainly will be challenged" and that the proposed rule is vulnerable to meritorious challenges on constitutional grounds, including both the Non-Delegation Doctrine and the Major Questions Doctrine. Commissioner Wilson also questioned the economic analysis underpinning the NPRM, noting that feedback from prior workshops regarding potential agency action included testimony that "economic literature is still far from reaching a scientific standard for concluding that non-compete agreements are bad for overall welfare" and that trade-offs for restrictive covenants are likely "context-specific." (Dissenting Statement at 7 (internal punctuation omitted).)

Likewise, within hours of the FTC issuing the NPRM, the US Chamber of Commerce issued a statement decrying the FTC's overreach. According to Sean Heather, US Chamber Senior Vice President for International Regulatory Affairs and Antitrust, "Today's actions by the Federal Trade Commission to outright ban noncompete clauses in all employer contracts is blatantly unlawful. Since the agency's creation over 100 years...