On Tuesday, July 9, 2024, the FTC Commissioners appeared before the House Committee on Energy and Commerce for an oversight hearing concerning the FTC’s fiscal year 2025 budget.
Though the focus was obviously on the FTC’s budget (including its constraints and request for an increase), not surprisingly, the FTC’s most recent litigation loss (the preliminary injunction ruling in Ryan, LLC v. FTC finding that the FTC’s noncompete ban is unlawful) was the topic of some of the discussion.
Here are the highlights:
In the almost three-hour hearing, the FTC’s noncompete rule came up, directly or by implication, only a few times.
In her opening remarks, FTC Chair Lina Khan made thinly veiled allusions to the FTC’s authority to issue the noncompete rule:
A core pillar of my approach to the FTC is making sure that we are being faithful to the text of the laws that Congress has written and making sure that we are honoring all of the provisions and not — you know, as unelected bureaucrats — by de facto nullifying authorities or tools that Congress has given us. And so that’s really informed my approach to the FTC’s enforcement work and will continue to do that in adherence with all court rulings.
Hearing those comments and knowing that the FTC’s “faithfulness to the text” of the FTC Act has now been called into serious doubt by Judge Brown’s preliminary injunction in Ryan LLC v. FTC, I could not help but wonder whether Chair Khan’s “core pillar” will lead the FTC to voluntarily stay the effective date of the noncompete rule? (I think not.)
The more direct discussion of the noncompete rule was initiated by Committee Vice Chair Walberg, who asked:
Chair Khan, the Northern District of Texas preliminarily enjoined the FTC’s noncompete rule, stating that the rule likely exceeds the agency’s authority and that it is arbitrary and capricious. Strong words. Assuming this is the final decision of the court, will the FTC stop trying to promulgate this rule?
Chair Khan responded as follows:
So as you know this was a preliminary injunction hearing and the judge has said that she will issue a full opinion by the end of August. So we will wait to see what happens there. And of course we would proceed with — in accordance with, you know, court decisions that that come down. We’re still reviewing and and proceeding accordingly. More generally, I mean noncompetes now trap over 30 million American workers. And we’ve heard from over 25,000 people across the country about how noncompetes are keeping them locked into their current job, preventing them from going to get a better opportunity elsewhere. We actually brought a case involving janitors and security guards in Michigan who were making close to minimum wage, who wanted to be able to switch jobs to get a higher wage and instead they were threatened with lawsuits for tens of thousands of dollars. So we’re talking about real harms to real people. As our rulemaking lays out, we think that not only are American workers less free, but our economy is worse off, less dynamic, less competitive.
Vice Chair Walberg responded, “We’ll look forward to [the] court having a final decision on that, and I’m encouraged that you say you will follow that.”
Vice Chair Walberg then noted that “the court’s decision largely tracks” Commissioner Holyoak’s dissent to the noncompete rule and asked her for her assessment. Commissioner Holyoak responded by explaining why the FTC lacks authority for the rule.
The other time the noncompete rule came up was through an oblique reference by Commissioner Slaughter, who said as follows:
We always have to make sure we are faithfully following not only the statutory text, but the court interpretations of those texts. And we will look at them closely and understand how we’ll proceed. I will note that as a general matter much of the rulemaking we have done at the FTC for decades, since the 1970s, has not been general APA rulemaking. It has been under the specific framework in the Magnuson Moss Act, which provides both structural guardrails on how we do rulemaking in terms of additional procedural steps and also substantive guardrails that are really important for us to follow. We cannot by rule proscribe or prohibit conduct that would not be prohibited by the FTC Act at all. In fact, by rule, we can only address conduct that is already an unfair or deceptive act or practice and is prevalent in the economy. So those guardrails are really important and we will continue to apply them faithfully consistent with Supreme Court precedent.
Though focused on Supreme Court precedent, I assume that Commissioner Slaughter did not intend to suggest that the Commission can or will ignore District Court orders.
Regardless, I am not sure how the use of noncompetes — something allowed in this country since the beginning — qualifies as “conduct that is already an unfair or deceptive act or practice . . . .” Indeed, we have thousands of cases over more than 200 years finding noncompetes to be lawful. And we have 46 states (and Washington, D.C.) permitting noncompetes, most by statute. And with the sole exception of Minnesota, no state for the past 100 years to consider a noncompete ban — including Arizona, Connecticut, Illinois, Massachusetts, Michigan, Nevada, New York, Rhode Island, Virginia, West Virginia, and Wisconsin — has enacted one. Indeed, in each of the last three states to send bills to ban noncompetes to the governor, the governor — New York Governor Kathy Hochul, Maine Governor Janet Mills, and Rhode Island Governor McKee — vetoed the ban. And even Washington, D.C., which initially enacted a ban, vacated it before it took effect.
The reality is that the use of noncompetes is an unfair and deceptive act or practice in the eyes of only three of the five FTC Commissioners. Indeed, it’s really only three of the last six FTC Commissioners, as the only other FTC Commissioner to participate in a vote on a version of the rule, Commissioner Christine Wilson, voted against it and resigned, in part, over her concern that it was outside the scope of the FTC’s authority.
More coming.