UPDATE: On April 23, 2024, the Federal Trade Commission has banned enforcement of noncompete agreements in employer-employee contracts. Click here for more. This article had been written prior to the ban.
A few Google searches about “non-compete ban status” or “will the FTC ban noncompete agreements?” will make it seem inevitable that the FTC (Federal Trade Commission) will work restriction clause enforcement in PA. In fact, yours truly has also blogged about the FTC’s plans to ban work restriction enforcement along with efforts in the US Senate to do the same.
But it’s not a done deal. Far from it.
In fact, on January 5, 2023, when the FTC proposed a rule change the above ban, there also existed — within the FTC itself — strong opposition toward a ban.
Strong and Vocal Opposition to an FTC Ban
On January 5, 2023, the same day the FTC proposed the above ban, the commissioner of the FTC, Christine S. Wilson, issued a blistering dissenting statement (“statement”). Granted, Ms. Wilson’s tenure as FTC Commissioner ended on March 31, 2023. However, her statement included key reasons why the FTC’s anticipated ban may fail, ultimately. First, Ms. Wilson noted:
The proposed Non-Compete Clause Rule represents a radical departure from hundreds of years of legal precedent that employs a fact-specific inquiry into whether a non-compete clause is unreasonable in duration and scope, given the business justification for the restriction.
Legal Challenges to the Anticipated Ban
Ms. Wilson also noted that, even if the FTC’s proposed ban becomes effective (as expected) in 2024, the legal challenge will be significant:
Setting aside the substance of the rule, the Commission’s competition rulemaking authority itself certainly will be challenged. The NPRM is vulnerable to meritorious challenges that (1) the Commission lacks authority to engage in “unfair methods of competition” rulemaking, (2) the major questions doctrine addressed in West Virginia v. EPA applies, and the Commission lacks clear Congressional authorization to undertake this initiative; and (3) assuming the agency does possess the authority to engage in this rulemaking, it is an impermissible delegation of legislative authority under the non-delegation doctrine, particularly because the Commission has replaced the consumer welfare standard with one of multiple goals. In short, today’s proposed rule will lead to protracted litigation in which the Commission is unlikely to prevail.
Questioning the FTC’s Expertise and Knowledge
In her statement, Ms. Wilson had lots more to say as the FTC Commissioner:
Until yesterday, the Commission had announced no cases (and therefore had no experience and no evidence) to conclude that [work restriction] clauses harm competition in labor markets.
Ms. Wilson implies that the Biden Administration is playing it fast-and-loose with the facts, to do something that Mr. Biden (and his government) knows will never survive judicial scrutiny.
Another example is Biden’s student loan forgiveness program, through which his administration proposed to pay down student debt. But it failed to withstand judicial scrutiny. Constitutionally, separation of powers requires that Congress (not the president) make the law, and legislate spending decisions (the power of the purse). The executive branch — i.e., the president’s administration — merely enforces the laws passed by Congress. Here, Ms. Wilson (a Trump appointee) implies that Mr. Biden’s FTC is playing politics and ignoring the separation of powers, once again, to make it appear he supports workers, to score votes, even though nothing may come of his alleged “efforts.”
Growing Opposition to the FTC Ban: US Chamber of Commerce Weighs in
Before one concludes “this is all political,” Ms. Wilson is not the only member of the “establishment” opposed to the FTC’s proposed ban. In fact, the U.S. Chamber of Commerce has threatened suit against the FTC for the anticipated ban. Here’s how the left-leaning CNBC described the U.S. Chamber of Commerce’s position:
A major business advocacy group has pledged to sue the Federal Trade Commission if it acts on a proposal to ban [of work restriction] clauses in worker contracts — an issue that has bipartisan support among lawmakers.
The U.S. Chamber of Commerce, which represents some 3 million businesses, is prepared to sue if the FTC continues to push for a proposal that prohibits companies from imposing [work restriction] clauses on employees, President and CEO Suzanne P. Clark told reporters Thursday.
Would a Ban of Non-Compete Agreements Make Any Real Difference?
Let’s put the political debate aside, shall we? (Yes!) The key question is: would banning work restriction clauses even matter? For example, would a ban spare a worker from litigation commenced against by a former employer, for going to work for a competitor?
The answer is no.
Even if the proposed FTC ban survives judicial scrutiny, the ban would expressly leave in place the employer’s right to sue a former employee for (a) violating a nondisclosure agreement – or NDA, (b) violating a non-solicitation agreement, or (c) stealing “trade secrets,” such as customer lists or other confidential data. Granted, the innocent employee may prevail in the end, if the facts warrant it. But news of him suffering through civil litigation — commenced by his former employer — will travel fast and have the same effect as a “non-compete”. It will make workers think twice about leaving a job to take another position for a competitor.
Let’s Get Started!
Contact a Pittsburgh attorney at our firm to discuss any trade secret, NDA, anti-solicitation agreement, or work restriction matter today!
412.342.0992
