U.S. Chamber Tells FTC it Should Withdraw Its Proposal on Noncompetes

In January of this year, the Federal Trade Commission (FTC) proposed new rules prohibiting employers from using non-compete clauses against their employees. In a statement, the FTC said the use of non-compete clauses “is a pervasive and often exploitative practice that stifles wages, stifles innovation and prevents entrepreneurs from starting new businesses.” I was. Agencies estimate that the new rules could increase wages by $300 billion annually as companies are encouraged to do more to retain workers.

The proposed rule change was released for public comment in January, and the submission deadline was extended in early March from March 20th to April 19th. As of April 18, his website at Regulations.gov showed 24,259 comments and 14,946 posted.

As the comment period ended this week, the US Chamber of Commerce stepped in and urged FTC Commissioner April Tabor to withdraw the proposed rule. The letter was signed by Sean Heather, Senior Vice President for International Regulatory Affairs and Antitrust, US Chamber of Commerce.

“Such a proposal would raise important concerns that non-competition agreements cannot adequately protect through other mechanisms such as trade, such as protecting investment in research and development, promoting workforce training, and reducing free riding. We are not aware of the potential benefits of pro-competitive business and personal interests, secret litigation or non-disclosure agreements,” Heather wrote.

Does the FTC have authority?

The US Chamber of Commerce cited three reasons for opposing the FTC’s proposed non-compete ban.

First, the group challenges the FTC’s authority to enforce binding regulations related to “unfair competition practices” under Federal Trade Commission law. The FTC cited its proposed rulemaking authority under Section 6(g) of the Act, but the U.S. Chamber of Commerce “assigned the Commission to establish internal procedural rules related to its authority to investigate suspected violations of the law.” It only gives narrow powers to create.” Issuance of laws and reports… [and] It does not give the Commission full authority to issue substantive rules binding on private individuals. “

The US Chamber of Commerce has characterized Section 6(g) of 15 US Code § 46 as narrow. However, the FTC, in addition to 15 USC 45, cited this section as the authority for rulemaking:[f]From time to time, classify enterprises and … make rules and regulations for the purpose of enforcing the provisions of this subchapter. “

But the Chamber said, “Section 6(g) says nothing about unfair competition methods or other substantive powers of the Commission.”

unfair competition methods

Unfair Competition Methods are cited in 15 USC 45, which the Chamber calls Section 5. This section gives the FTC authority to prevent people and companies from “using unfair methods of competition.”

This leads to the second reason the Chamber of Commerce opposes non-compete. Because the Chamber of Commerce challenges the FTC’s classification of non-compete clauses as unfair. The submission argued that:[unfair methods of competition] It cannot be construed to include non-compete obligations for all workers. “

The Chamber of Commerce said it had specific problems with the FTC’s Nov. 10, 2022 policy statement, citing federal court precedent that argued it recognized the procompetitive benefits of non-compete clauses. I was. Unfair Competition Methods.

In a policy statement, the FTC said: “

However, the Chamber argued that “history, precedent, and the usual tools of law interpretation undermine the Commission’s view that non-competition for workers is emphatically ‘unfair’.

Lobbying groups are also concerned about the retroactive application of non-compete prohibitions to existing contracts. The FTC has said the rule will not apply retroactively, but the Chamber argued the ban would allow employees to bypass existing non-compete clauses.

poor reasoning

The Chamber of Commerce challenged the FTC’s authority to enforce the proposed non-compete prohibition, but the ultimate grounds for opposing the ban exceed authority. Lobbying groups argued that the proposed ban was unfounded and violated the Administrative Procedures Act.

“Even if the Commission had the legal power to issue rules prohibiting non-compete agreements,” Heather said, “the Administrative Procedure Act could only be enforced as a result of a thorough and well-founded decision-making process.” I demand that you do it.”

The Chamber of Commerce cites five reasons why the FTC has yet to meet this standard. First, the advocacy group believes the FTC underestimated the economic costs of the proposal by ignoring corporate justifications for non-compete clauses. He further argued that the FTC overestimated the merits of prohibiting non-compete clauses.

The final three reasons given by the Chamber of Commerce were the FTC’s failure to justify the breadth of its rules, violations of the Regulatory Flexibility Act, and finally, the proposal’s inconsistency with other federal laws. That’s it.

In announcing the proposed rule, the FTC estimates that one in five U.S. workers is bound by a non-compete clause. It also estimates that the ban will save U.S. workers $250 billion annually to $296 billion. On these issues, the Chamber said the FTC relied on “outdated or limited data without considering recent legal developments or investigations to the contrary.”

For these three reasons, the Chamber asked the FTC to abandon the proposal. But if it moves the rule forward, the Chamber argued that it should be “substantially amended”. I suggested an alternative. Alternatives include focusing on “unfair and deceptive conduct and practices” to ensure employees are better informed about non-compete clauses and protecting some forms of non-compete agreements. Contains various fixes for

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