After 200+ Years Under State Law, FTC Proposes to Sweep Away All Noncompetes in Unauthorized Federal Power Grab

For over 200 years, the regulation of noncompetition agreements (“noncompetes”) has been entirely the province of state law. Forty-seven states currently permit noncompetes, and the most recent state to ban them was Oklahoma in 1890. Yet the Biden Administration and its activist Federal Trade Commission (“FTC”) Chair want to do exactly that nationwide. Especially given a recent decision of the United States Supreme Court, the FTC’s jurisdiction in the matter is subject to serious question. And whatever the agency attempts to promulgate should be challenged both on jurisdictional and substantive bases. …

Shortly after his inauguration in 2021, President Biden issued an executive order entitled “Promoting Competition in the American Economy,” which “encourage[d]” the FTC to “consider” exercising its putative rulemaking authority to curtail noncompetes. Current FTC Chair Lina Khan has not shied away from sharing her view that noncompetes are inherently anticompetitive and should be prohibited altogether. It was thus unsurprising when, on January 5, 2023, she (with the support of the Commission’s other two activist members) issued a proposed Rule banning noncompetes nationwide, with retroactive effect. However, banning noncompetes is inconsistent with the expressed will of the people, as evidenced by numerous failed efforts to do so in Congress and in the legislatures of some of the most employee-friendly states and cities in the nation. Nor does the Biden Administration appear even to have the constitutional authority to do so for the reasons outlined in the Supreme Court’s West Virginia v. EPA decision. This Legal Backgrounder outlines the history of noncompete regulation in the states and identifies recent trends in that regard; describes the Biden Administration’s efforts to nationalize the regulation of noncompetes; and explains why banning noncompetes nationally is neither the will of the people nor consistent with the Constitution.