The FTC tips its hand on noncompete ban and lack of power

Two days ago, I posted about the slow progress of the New York bill to ban noncompetes (S3100A), currently sitting on Governor Hochul’s desk.

As part of that discussion, I noted that the FTC sent a letter on November 28, urging Governor Hochul to sign the bill.

The FTC’s urging is subtle. It never expressly states that the Governor should sign the bill and ban all noncompetes.

Rather, it says, “As referenced in the justifications for S3100A, the FTC proposed a rule in January of 2023 banning non-compete clauses in employment at all wage levels. In doing so, the FTC made several preliminary findings that you may find informative as you consider this bill.” (Emphasis added.)

As such, while purporting to offer potentially helpful information, the framing (to me, at least) belies the purpose of the letter.

While I hope I am wrong, I believe that we now know where the FTC is headed on its forthcoming rule: a full ban on employee noncompetes.

Here is why: Quite simply, if the FTC was planning to propose an exception for high-wage earners, it would not have encouraged Governor Hochul to move forward with the proposed full ban.

Nor would it have continued to proffer the same “evidence” (i.e., flawed research) of the allegedly harmful impacts of noncompetes — “at all wage levels” —  that I and many others have already debunked multiple times before. Pressing that research at this point is simply not helpful to a fair and honest assessment of whether to pass the New York bill (or any other bill, rule, or regulation).

Further, if the FTC was in fact interested in a wage-based exemption from a ban, it presumably would have highlighted the many good reasons to consider such an exception. It did not. While it identified some support for an exception, it simultaneously argued that any support should be ignored.

Given the substance of the FTC’s letter, it seems likely that the FTC is preparing to issue a full noncompete ban with no exception for high-wage earners — just as it signaled in its Notice of Proposed Rulemaking (NPRM) back in January. (That said, I cannot imagine that the FTC won’t loosen its previously proposed stringent limitations on noncompetes in the sale-of-business context.)

The FTC’s letter is telling on another issue.

As Max Perlman observed on a panel with me a few weeks ago, the letter indicates that the FTC is concerned about its power to ban noncompetes.

If the FTC were confident in its power to issue the rule, it would not care what New York does; its rule would supersede New York’s law.

This concern about the scope of its authority is consistent with comments made even during the FTC’s first workshop on noncompetes back in January 2020, as well as with the many articles and letters written on the subject since the issuance of the NPRM. (See, e.g., here and here.)

The good (or bad) news is that our speculation may not be long-lived.

If Bloomberg report Dan Papscun’s prediction that the FTC will issue its rule in April 2024 is right, we will know soon enough.

Of course, if, as I believe, the FTC has already tipped its hand about where it’s headed, why not just issue the rule now? Are they still reading the 26,813 comments? Likely not, if they are encouraging a full ban.

Are they still putting together their arguments to support the rule? That’s my guess.

Stay tuned.