Since taking the reins of the Federal Trade Commission (FTC) almost two years ago, Chair Lina Khan has sketched an agenda that appears inevitably set for rebuke before the U.S. Supreme Court. And that eventual day of reckoning has drawn closer with the high court’s opinion in Axon Enterprise v. FTC earlier this month, which will allow litigants to bring constitutional challenges to the agency’s authority years earlier than would previously have been allowed.
The highest-profile example of the FTC’s agenda setting it on a path to the Supreme Court is its ongoing effort to rewrite an estimated 30 million employment contracts across the country to invalidate essentially all existing non-compete clauses and prohibit any future ones. Public comment on this proposed rule were due this past week and it appears on track to be adopted in some form by the fall.
To understand how the non-compete rule sets the FTC on a collision course with the Supreme Court, one need look only at last term’s opinion in West Virginia v. Environmental Protection Agency, which invalidated an EPA rule on the grounds that it presented “major questions” that Congress had not clearly empowered the agency to address. As explained in the opinion, federal agencies cannot adopt regulations of “vast economic or political significance” based merely on general grants of authority.
Based on that test, the FTC’s proposed non-compete rule faces a dubious future in the courts. The rule undoubtedly presents “major questions” and the FTC’s statutory authority to adopt such rules is far from clear.
The FTC Act grants the commission authority to act against “unfair methods of competition.” But this has long been understood as authority to engage in antitrust enforcement. The proposed non-compete rule is obviously not an enforcement action and bears no resemblance to antitrust. It would not, for instance, apply only to employers with demonstrated market power, nor would it require a showing that a particular non-compete agreement has anticompetitive effects. Rather, it is a straightforward labor regulation of the sort that Congress has not clearly empowered the FTC to impose.
At the same time, the rule clearly implicates questions of vast political significance. It would preempt legislation adopted in dozens of states and circumvent state common law. It would also make an end-run around congressional oversight of labor contracts, as well as the work of other federal agencies like the U.S. Labor Department and National Labor Relations Board.
There is also no question that it would have vast economic significance. By the FTC’s own account, the rule would have an annual impact approaching $300 billion. For context, the Congressional Review Act defines a rule as “major” if it has an annual impact of at least $100 million. The rule also would, by the FTC’s own estimate, affect existing employment contracts for one of every five U.S. workers—some 30 million of them.
Even if, by some chance, the FTC Act were found to have authorized the FTC’s proposed rule, the Court might well deem such a delegation improper under the so-called “nondelegation doctrine,” which prohibits Congress from giving its legislative powers to executive-branch agencies without sufficient guidance. It can empower them to interpret laws, but not effectively to write them out of whole cloth.
The FTC’s proposed non-compete rule is an expansive and aggressive claim of authority that sets the commission on a direct path to the courts. But after the Supreme Court’s opinion in the Axon Enterprise case, decided earlier this month, there are several other challenges to the FTC’s authority, as well as its structure, that are likely to get to the courts even sooner.
In the Axon case, the court held unanimously that parties being sued by the FTC can bring constitutional challenges to the commission’s authority in federal court. Previously, litigants had to wait until the FTC’s own internal administrative litigation was finished before raising concerns about its basic authority in federal court. That can take years and comes at substantial cost.
In the coming weeks, we can reasonably expect numerous cases to be filed raising myriad constitutional challenges to the FTC’s structure and authority. Axon itself will surely bring such a challenge. Indeed, its challenge has already been remanded back to the federal district court. Illumina and Grail, parties to a protracted and controversial merger challenge, seem likely to challenge how the commission adjudicates such challenges. Microsoft, too, may well revive arguments it had made in an earlier filing that the FTC’s structure violates the separation of powers and the adjudication process falls short of the Fifth Amendment’s due-process guarantees.
Certainly, this coming deluge augurs a reckoning for the FTC, and for many other federal agencies, as well. But the most important implication is for Congress, which has yielded too much of its own legislative power and given away too much of the executive’s power to unaccountable agencies. The FTC and most other agencies have important work to do. But they can do only the work that they have been properly and specifically empowered to do by Congress.
As the FTC increasingly finds itself party to other litigants’ days in court in the coming months and years, we should remember that the path forward will be through, not around, Congress.
