Last week, the Federal Trade Commission responded to efforts by a Texas business and the U.S. Chamber of Commerce to convince a Texas federal judge to block the Federal Trade Commission’s final Non-compete Rule, which would impose a comprehensive ban on new non-competes with all workers, including senior executives.
The FTC’s brief is 54 pages long. I’ll dissect it for you in a few hundred words.
The challenge to the FTC’s rule won’t succeed.
The FTC spends most of its brief arguing that its non-compete ban is lawful. More specifically, the FTC posits that Congress delegated authority to the FTC under the FTC Act to prevent “unfair methods of competition” in or affecting commerce, such as when employers use noncompetition agreements.
The FTC posits that all non-competes (1) are a method of competition as opposed to a condition of the marketplace, (2) are facially unfair because they are restrictive and exclusionary, and (3) tend to negatively affect competition in labor, product, and service markets. Thus, the FTC adopted a rule to ban non-competes entered into on or after the rule’s effective date.
The FTC further defends its rulemaking authority by relying on Section 6 of the FTC Act, which gives the FTC the power to make rules and regulations to carry out the remaining provisions of the Act, such as preventing unfair competition. Plus, this is not an “extraordinary” case “in which the history and breadth of the authority that the agency has asserted…provide a reason to hesitate before concluding that Congress meant to confer such authority” on the FTC to create the non-compete rule.
In plain English, the FTC’s job, consistent with Congress’ mandate, is to prevent unfair competition, and a non-compete rule is right in its wheelhouse.
“That mandate necessarily requires …tak[ing] account of the widespread adoption of practices across industry,” argues the FTC, “not just the individual, isolated effects of a single contract.” The FTC has determined that every non-compete is a method of unfair competition.
Employers won’t face irreparable harm.
The movants must prove irreparable harm to enjoin the FTC’s non-compete rule. But will they? The FTC argues that “mere litigation expense, even substantial and unrecoupable cost, does not constitute irreparable injury.” Plus, even without the non-compete rule, the FTC could bring an enforcement action against any employer it felt engaged in unfair competition through the use of non-competes.
The balance of equities and public interest disfavor an injunction.
The FTC argues that the rule’s benefits (innovation, competition, more patents, higher wages) outweigh any harm employers may suffer through enforcement.
What’s next?
The plaintiff and the U.S. Chamber will have a chance to respond to the FTC, and then the court will rule.