Late last month, the Federal Trade Commission (FTC) finalized a nationwide ban on non-compete agreements, contractual clauses that preclude employees from working for competitors within designated temporal or geographical boundaries. In its press release, the agency professed to “protect[] the fundamental freedom of workers to change jobs.” The FTC, however, failed to note that its blanket ban infringes on workers’ fundamental freedom to enter private contracts by which they exchange increased pay and professional development for a commitment to refrain from defecting to competitors.
To be sure, non-compete agreements do not seem to be an unallowed economic good, and some regulation seems prudent. However, limits on excessive or coercive non-competes differ immensely from a per se ban. Research on the clauses remains nascent and, with respect to the potential economic effects of a categorical ban, inconclusive. Non-competes often benefit workers in high-information sectors such as finance, promoting information sharing, especially for new hires. But for low-wage hourly workers, they serve little competitive purpose and likely depress wages (consider sandwich shop Jimmy John’s infamous 2016 settlement). Moreover, many employers who require non-competes do so deceptively or coercively. For example, one survey of engineers found that nearly 70 percent learned that they must sign a non-compete only after receiving their job offer (at which point they were more likely to have declined other offers); a quarter of respondents learned of it on their first day.
A colorable case exists for limiting non-competes’ terms or implementation, as nearly all states do. But the FTC’s rule categorical ban — which, with a limited exception for executives, also retroactively nullifies existing clauses — defies not just economic principles but federal statute and decades of legal precedent. Without firm grounding in law, the agency has attempted to arrogate to itself vast powers, a usurpation whose implications reach far beyond any discrete regulatory debate. The FTC’s dubious statutory interpretations would, if accepted, likely render its parent statute, the FTC Act of 1914, unconstitutional.
The FTC’s statutory misdirection will fool only blinkered ideologues and the uninformed. Section 5 of the FTC Act directs the agency powers to combat “unfair methods of competition” (UMC). An ancillary provision in Section 6 authorizes rulemaking to effect the statute’s provisions. The FTC claims the two sections confer the essentially legislative authority unilaterally to declare practically any business practice — no matter how common — to be unfair and illegal. This is revisionist nonsense. The FTC’s self-serving reading contravenes the FTC Act’s legislative history and decades of subsequent interpretation (including from the agency itself) indicating that the FTC Act’s rulemaking authority with respect to UMC encompasses only procedural (not substantive) rules. The agency’s faux textualism trots out discredited legal precedent and a selective historical account for one purpose — to assume unbridled power as an economic regulator, an aim the agency has made its explicit policy.
The FTC’s pilfering of legislative authorities would install the agency as a de facto legislative body, working parallel to Congress. Indeed, Congress has considered myriad non-compete-related proposals in recent years. In each case, however, it has declined to act. Under the U.S. Constitution (which vests “all legislative powers…in a Congress of the United States”), congressional inaction does not authorize lawless bureaucratic overreach.
Understanding the expanse of the FTC’s newly claimed authorities requires revisiting a November-2022 policy statement. In it, the agency formalized (as put by then-commissioner Christine Wilson) an “‘I know it when I see it’ approach, premised on a list of nefarious-sounding adjectives, many of which have no antitrust or economic meaning.” This document rejected empirically grounded antitrust enforcement for a discretionary standard, eschewing traditional, pro-consumer antitrust tests that could thwart enforcers’ bids to micromanage the economy.
But suppose arguendo that Congress did, in fact, delegate the authority the FTC now claims. That is, suppose that the FTC Act gifted the eponymous agency a Thanos-like power to snuff out any business practice it dislikes. This siphoning of essentially legislative powers to an administrative agency would almost certainly violate the Constitution’s separation of powers, which judges have preserved under the non-delegation doctrine. If the FTC succeeds in convincing a court of its erroneous statutory argument, it would, simultaneously, jeopardize the very core of the act that created it.
Mid-century antitrust enforcers overreached — much as today’s FTC wishes to do — and their abuses triggered a legislative and judicial backlash. The unbearable costs of discretionary, interventionist antitrust enforcement incited a bipartisan reform movement, which oriented modern antitrust law towards competition, consumer welfare, and hard-nosed economic analysis.
The modern FTC seeks to return to the mid-century — a time when regulators coddled favored businesses and business models and subordinated consumer choice to their own myopic sensibilities. Its attempts to reclaim these expansive powers, contravening basic constitutional principles, will end no better than previous ones.
