The FTC wants to ban non-compete clauses. Can it?

While reasonable people can and do disagree about the merits of noncompete contracts, the FTC’s announcement makes no mention of the fact that most states already regulate noncompete clauses and employees can generally sue to escape unreasonable ones. Indeed, there are colorable arguments for regulating some noncompetes, particularly those for entry-level positions. In 2016, for instance, multiple state attorneys general forced sandwich chain Jimmy John’s to settle over clauses imposed on low-wage employees, despite there being no risk of spilling proprietary secrets. More deviously, one report from Cornell University’s Matt Marx found that nearly 70 percent of engineers surveyed were not informed by their employer that they must sign a noncompete until after receiving a job offer, and about a quarter of respondents were informed on their first day.

The FTC proposal would further ban contractual terms that are “de facto non-compete clauses,” which in effect prohibit “the worker from seeking or accepting employment with a person or operating a business after the conclusion of the worker’s employment with the employer.” This language is broad and nonspecific, which means the FTC is essentially giving itself a regulatory blank check. FTC Chair Lina Khan, an unapologetically aggressive enforcer, may well exploit the text to its legal breaking point.

That is, if the new rule can survive judicial scrutiny.

FTC Commissioner Christine Wilson, the lone dissenter on the new policy, wrote that the FTC likely lacks the authority to enact the proposal.

[This seems significant enough — and certainly intrusive enough — to qualify as a “major question” in regulatory terms. David McGarry agrees, and that would require Congress to act first or at least to expand the FTC’s jurisdiction. However, I’d go one step further and argue that even in a regulatory sense, the FTC lacks jurisdiction. If this falls under any regulatory umbrella, it would be the Department of Labor, not the independent Federal Trade Commission. — Ed]