ICLE Scholars: FTC’s Noncompete Ban Is Wrong on Substance and Procedure
PORTLAND, Ore. (Jan. 5, 2023) – New rules proposed by the Federal Trade Commission (FTC) to ban workplace noncompete agreements both exceed the commission’s rulemaking authority and threaten to erase the benefits that such agreements may provide to workers and firms alike, according to scholars with the International Center for Law & Economics (ICLE).
In many cases, noncompete agreements can help employers to capture the benefits of investments they make in employee training and trade secrets, upon which rivals could otherwise free ride by bidding away fully trained employees, according to ICLE Senior Scholar and former FTC Attorney Advisor Daniel Gilman, who added that even the FTC’s own Bureau of Economics staff have observed the benefits that such agreements can provide.
“Ultimately, these agreements offer both costs and benefits that each party must carefully weigh,” said ICLE Chief Economist Brian Albrecht. “This doesn’t mean that there’s never a reason for antitrust authorities to examine potentially abusive or anticompetitive noncompete clauses, but such examples should be assessed on a case-by-case basis, rather than through brightline rules.”
ICLE Director of Law & Economics Programs Gus Hurwitz also pointed to the dissenting statement from FTC Commissioner Christine S. Wilson, which raised questions about the commission’s authority to engage in “unfair methods of competition” rulemaking, as well as whether the rule violates the “major questions doctrine” addressed by the U.S. Supreme Court in their 2022 West Virginia v. EPA decision.
“Without any explicit guidance from Congress, the FTC in this rule proposes to rewrite millions of employment contracts and preempt what has traditionally been a matter for state contract law,” noted ICLE President Geoffrey A. Manne.
“Between this rule and its recent guidance on the gig economy, the FTC is taking on a role as master labor regulator that no one in the world thinks it’s been granted,” Manne said. “This is particularly curious, given that we already have a U.S. Department of Labor.”
For other ICLE resources on noncompete agreements, see these comments filed with the FTC in September 2021 by Manne and Director of Competition Policy Dirk Auer; this 2022 paper by Academic Affiliate Alan Meese; and this 2020 paper co-authored by Academic Affiliate Jonathan M. Barnett.
To schedule an interview with ICLE scholars about the FTC’s proposed noncompete rule, contact Communications Manager Elizabeth Lincicome at [email protected].