US Chamber of Commerce to challenge FTC noncompete ban on Wednesday

The US Chamber of Commerce held a press conference today about the FTC’s up-coming announcement and vote on the final noncompete rule. I am very appreciative that the Chamber permitted me to attend the press conference!

As expected, the Chamber is planning to file a lawsuit challenging the FTC’s rule. The surprise was that the Chamber is planning to file on Wednesday.

Here’s a very quick recap:

Shira Rawlinson, Vice President, Communications for the Chamber, kicked off the meeting.

Neil Bradley, Executive Vice President, Chief Policy Officer, and Head of Strategic Advocacy for the Chamber began the substance by announcing that the Chamber is planning to oppose the (anticipated) Rule. He observed that if the FTC moves forward with a ban, it will be the first time in the 100-year history of the FTC that they will regulate like this.

Daryl Joseffer, Executive Vice President and Chief Counsel, U.S. Chamber Litigation Center, laid out the legal approach to the challenge.

The following are the key arguments identified by Mr. Joseffer (based on the anticipated Rule):

  • The FTC lacks authority to issue a rule in this context, and has acknowledged the limitations in the past. During a Q&A with the press, Neil Bradley noted that noncompetes long-predate the FTC Act and that no one ever thought noncompetes were illegal; for the FTC to invalidate them now would be an “unprecedented power grab.”
  • The Rule is a sweeping abuse of the FTC’s authority under Section 5 of the FTC Act, opening the door for the FTC to regulate virtually anything any three commissioners — now and in the future — wish to regulate. In response to questions from the press, Mr. Bradley explained that the FTC’s position that it can regulate conduct under Section 5 of the FTC Act opens the door to many types of regulations never before anticipated. He called it a “pandora’s box” with no limiting or governing principles. Mr. Joseffer added that the FTC has already provided a roadmap of its plans in its November 10, 2022 Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act.
  • The Rule is impermissibly retroactive. In order for an agency to extinguish hundreds of thousands of contracts (as the anticipated Rule is expected to do), there must be a clear Congressional authorization to do so. There is not. Even general rule-making authority is insufficient. Mr. Joseffer pointed out that if the FTC could issue rules making previously legal conduct illegal, businesses would never be able plan.
  • The Chamber anticipates that it may also challenge the Rule under the Administrative Procedures Act.

Wall Street Journal reporter Dave Michaels asked an insightful question about whether last year’s veto by New York Governor Hochul of a bill to ban noncompetes might be relevant to the arguments the Chamber plans to make. Mr. Bradley acknowledged the possibility, noting that Governor Hochul’s veto confirms that a ban is “bad policy” and that there is “bipartisan opposition on a policy level.” Mr. Bradley added, “Under our current structure, it’s for state legislatures and governors.”

To that point, it’s worth noting that Governor Hochul’s veto is not unique. Other governors have recently vetoed other bills to ban or restrict noncompetes. In particular, Maine’s Governor Mills just vetoed a bill to ban noncompetes last month, with a thoughtful letter explaining her reasons. And last year, Nevada’s Governor Lombardo vetoed a bill that would have banned physician noncompetes. In addition, in 2022, the DC Council, after approving a near-total ban, reversed course and replaced it with a wage threshold. Other states have also considered and rejected bans (through the legislative process, before it got to the governor).

Interesting times!

Stay tuned. We’ll keep you posted.