OPINION:
The current power-hungry Federal Trade Commission is scrambling to divest the courts and the state and federal legislatures of governance over employment noncompete agreements.
On April 19, the public comment period ended on the FTC’s proposed rule to ban such noncompetes and vest the FTC with the authority to supersede the state and federal legislatures and the judiciary in investigating and enforcing the noncompete prohibition. Now the clock is ticking for a vote by the commission on the contents of the final rule, the announcement of the final rule with publication in the Federal Register, setting off an effective date 60 days later and then a 180-day period allowed for employers to comply.
If the FTC gets its foot in the door with its initial broad proposed rule banning all noncompetes nationwide or a more restricted version of the proposed rule, such as limiting it to low-wage employees, as proposed by the American Bar Association, or exempting executive management employees from noncompetes, it will unleash a tsunami of rules, regulations, massive budgetary and staff expansion, and imposition of draconian employer record-keeping requirements.
In anticipation of the FTC’s would-be new rule as noncompete czar under the guise of rulemaking authority, the 2024 FTC budget requests already seek a 37% increase to $590 million and a staff increase of 310 employees. The FTC has also revealed its plans for sweeping self-serving data collection for continual proof of the effect of noncompetes on the economy.
This FTC action is a prime example of the administrative state out of control, recognized by Supreme Court Justice Neil Gorsuch in his dissent in Buffington v. McDonough and concurring opinion in West Virginia v. Environmental Protection Agency and Chief Justice John Roberts in his West Virginia v. EPA opinion.
This power grab is clearly designed to upset the balance of power in the executive, judicial and legislative branches of government. It is an overt end run around state and federal legislatures and judicial decision-making. Whether you favor or disfavor employment noncompetes, expansive rulemaking usurping the power of the legislative and judicial branches of government and transferring power to bureaucrats is antithetical to the separation of powers under the Constitution.
As Justice Gorsuch has pointed out, administrative rulemaking is not the proper device for invading the province of matters traditionally regulated by the states. The states have traditionally regulated noncompetes for over a century through state statutes and common law enunciated by the courts throughout the nation.
Legislation and judicial administration have been and continue to be ubiquitous and flourishing across the nation, carried over from a 1711 noncompete case in England, Mitchel v. Reynolds, and recognized in the 6th U.S. Circuit Court of Appeals opinion of then-Chief Judge William Howard Taft in United States v. Addyston Pipe & Steel Co. in 1898.
This FTC action is also contrary to the major questions doctrine enunciated in recent Supreme Court cases holding that policy decisions of administrative rule making on major questions of vast economic and political significance are an excessive, unauthorized exercise of agency authority unless there is a clear congressional authorization. The agency’s planned massive and continuous data collection efforts to prove noncompete economic and political impact as justification for the proposed rule lend support to the application of the major questions doctrine.
Ultimately, the FTC’s proposed noncompete rule is and should be destined for failure under judicial scrutiny. Once the FTC adopts the rule, injunctive relief from the courts may be able to stay its implementation prior to full adjudication.
The question is not whether the proposed rule prohibiting noncompetes is good or bad. The central question is whether we want to yield governing authority for this or any other major political question to executive fiat and administrative agency control. This rule is the byproduct of President Biden’s executive order urging agency rulemaking to prohibit noncompetes to legislate without legislative approval or judicial scrutiny. It is, in essence, an overreach of executive and administrative authority by misusing the delegation of authority to implement legislative action by rules promulgated by the agencies.
Justices Gorsuch and Clarence Thomas have been highly critical of the Supreme Court’s Chevron deference doctrine, which requires deference to administrative agency interpretation of ambiguous statutory provisions. The court has accepted a new case, Loper Bright Enterprises v. Raimondo, to be heard later this year, which, considering the declining support and criticism of Chevron from current members of the court, will likely overrule Chevron v. Natural Resources Defense Council.
Such a ruling would undercut the FTC’s reliance on the Chevron deference argument for allowing it to broadly define its authority to adopt rules to implement protections against ’’unfair or deceptive acts or practices in or affecting commerce’’ under section 5 of the Federal Trade Commission Act and to broadly interpret that authority to decide the meaning of that phrase to include noncompete agreements.
• William Constangy is the author of “Noncompete Law,” a national law book published annually by LexisNexis/MatthewBender and over a dozen other articles on law and politics. He is a retired North Carolina Superior Court judge and currently an active arbitrator in Charlotte, North Carolina. He holds a Juris Doctor from the Duke University School of Law and a Bachelor of Arts degree from Wake Forest University.
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