US Rep Spartz Questions FTC’s Authority and Reason for Proposed Noncompete Ban

In case you missed it, yesterday (Friday, January 13), Congresswoman Victoria Spartz (R-IN), who sits on the House Antitrust Subcommittee, sent a brief letter (shorter than this blog post!) to FTC Chair Lina Khan, flagging a constitutional concern with the FTC’s proposed rule to ban noncompetes, and questioning both the need for the ban and one of the premises supporting the proposed rule.

In case you missed the bigger picture, the FTC issued a notice of proposed rulemaking (called an NPRM) for a rule that would ban virtually all noncompetes, as well as potentially many nondisclosure agreements (necessary to protect trade secrets), nonsolicitation agreements (necessary to preserve a company’s customer base), and other restrictive covenants. I wrote a “short” (much longer than this blog post) article summarizing the rule, what its problems are, and what to do about it (behind a paywall) and also recorded a Fairly Competing podcast episode covering it in detail with John Marsh and Ben Fink.

Congresswoman Spartz’s letter is a short read, but it succinctly zones right in on one of the very concerns we have been flagging since first learning (in 2020, I believe) that the FTC was contemplating a rule banning noncompetes, i.e., the FTC likely lacks authority to issue such a rule.

The point is also quite similar to one recently raised in a WSJ opinion by Eugene Scalia, noting, quite correctly (based on a study estimating the number of workers who presently have noncompetes), that the proposed rule would “rewrit[e] 30 million contracts and overrid[e] 47 state laws.”

It would actually also rewrite part of even California’s, North Dakota’s, Oklahoma’s, and Washington, D.C.’s noncompete laws.

My take is simply that, whether or not you agree with the policy behind a noncompete ban (partial or total), the threshold question remains: Does the FTC have authority to do it? Stuart Gerson and Erik Weibust (both of Epstein Becker & Green, Stuart being a former partner of mine when I was there) were the first to write a detailed analysis of the issue. (Admittedly, it may be more accurate to say that it was the first in-depth article I saw about it.)

With the proposed rule (or some version of it) now almost certain to be a reality, this threshold issue will be front and center in legal challenges quite soon. In that regard, the proposed rule is subject to a 60-day comment period, following publication in the Federal Register, and then, once final, would not become operative for another 180 days. So, you can expect challenges to start during that window.

In the meantime, I am drafting another letter (see here for earlier letters) to submit comments that will (among other things) identify the lack of authority, provide some history and background on the issues, explain the pros, cons, and practical realities of noncompetes, highlight the many reasons that the research does not support a ban (and certainly not a full ban at all levels across all industries), correct certain mistakes in the 216-page NPRM, and identify solutions (assuming the FTC has authority) for a more-balanced approach.

As in the past, I expect to be joined by many lawyers from around the country, each of whom has given careful consideration and attention to the issues, which will be be summarized in brief bios of each attached to the letter. The purpose of having so many people review and sign on the letters is (and has been) that it ensures that the FTC receives valuable insights that are the aggregation of extensive, practical, hands-on experience derived from many years of learning in many states around the country.

If you are interested in providing comments and signing on (subject, of course, to review and agreement with the final draft), please email my paralegal, Erika Hahn and email me at your earliest convenience. If you, instead, wish to comment on your own (whatever your perspective), now would be the time.