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FTC TO FINALIZE NONCOMPETE RULE TODAY  
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David Dayen, Luke Goldstein
April 23, 2024
The American Prospect
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_ The fight now shifts to the courts, where the U.S. Chamber of
Commerce will likely try to strip the agency of its rulemaking
authority. _

, Francis Chung/POLITICO via AP Images

 

The Federal Trade Commission (FTC) will hold an open meeting today to
vote on a proposed rule banning noncompete agreements, which restrict
employees at a company from taking jobs at rival firms for a set
period of time.

It is expected that the rule will be finalized today. Sources have
indicated to the _Prospect _that little in the final rule has changed
from what was originally proposed at the beginning of 2023
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The agency has held public events
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hearing from workers affected by noncompetes, and more than 27,000
comments were submitted on the proposed rule, most of them in favor.

But while today’s meeting will almost certainly result in a final
rule, that doesn’t make it completely safe from its antagonists. The
U.S. Chamber of Commerce indicated at the American Bar Association
antitrust law section’s spring meeting earlier this month that it
would file suit to overturn the rule. It’s no secret that the
Chamber is staunchly opposed to the rule, as they filed
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a public comment calling it “arbitrary and capricious.”

A lawsuit could more broadly threaten the rulemaking authority the FTC
cited when proposing to ban noncompetes. This authority, under Section
5 of the FTC Act, was dormant for decades until the ascent of Lina
Khan to the position of chair. Writing definitive rules protecting
against unfair methods of competition across the economy relieves the
FTC of having to rely on lawsuits against individual firms. Lawsuits
often take years and require costly expert analysis, while rulemaking
can set bright lines barring anti-competitive activity.

The FTC asserted the right to use Section 5 rulemaking in a policy
statement
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in 2022. While a noncompete ban robs companies of a key wage
suppression tool, the Chamber of Commerce and its allies are perhaps
even more afraid of repeated uses of rulemaking to set guardrails for
firm behavior. That’s why the fight over noncompetes will be even
bigger than the specific rule.

ROUGHLY 30 MILLION AMERICANS ARE BOUND by these restrictive covenants
that employers wield to prohibit worker mobility. Fast-food cooks,
janitors, and hairdressers have these clauses in their employee
contracts, and so do software engineers and corporate vice presidents.
Though they started out mainly at the executive level to protect trade
secrets, noncompetes have trickled down across the economy to low-wage
workers who don’t credibly have access to competitively sensitive
information. Instead, the agreements are used to shackle workers to
their companies, taking away one of the most important tools that
employees at non-unionized shops have to negotiate up wages: to take a
higher-paying job elsewhere.

By restricting labor mobility, studies have estimated that these
agreements significantly suppress worker earnings across the economy.
The FTC, when it proposed the rule, put the cost to workers at a
staggering $300 billion per year
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Noncompetes also pose obstacles for new startup businesses, which
struggle to attract talent that is tied to large employers. In
numerous sectors such as health care, noncompetes have credibly
worsened job quality so much that they’ve led to work shortages,
which hampered the system’s response
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during the pandemic.

Roughly 30 million Americans are bound by these restrictive covenants
that employers wield to prohibit worker mobility.

The proposed rule was widely celebrated by reform advocates for
issuing a complete ban on these agreements across income levels,
without any carve-outs. The ban also included language about a set of
separate but related restrictive labor clauses known as training
repayment agreement provisions (TRAPs). In these agreements, workers
are forced to pay for their own previous work training after they
leave a job to start a new position. The National Labor Relations
Board recently unwound a TRAP
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put together by an Ohio-based aesthetic services company called Juvly,
which asked departing workers to pay between $50,000 and $60,000 in
training costs.

Some anti-monopoly groups asked for a stronger final rule
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on TRAPs. The current provision doesn’t ban them, but instead
prohibits “unreasonable” repayments by employees, without fully
defining what would constitute an unreasonable payment. (See the
update below.)

The noncompete ban, even if it incorporates stay-or-pay contracts,
cannot fully wipe out these abuses from the workforce. That’s
because the FTC Act exempts several industries
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unfair methods of competition, including banks and credit unions,
partnerships, nonprofits, agricultural corporations subject to the
Packers and Stockyards Act, some types of health care workers, and air
carriers. Other agencies, like the Department of Transportation or the
Department of Health and Human Services, would have to promulgate
their own rules
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to protect those workers.

AS SOON AS THE FTC ANNOUNCED THE PROPOSED RULE in 2023, the Chamber of
Commerce signaled its opposition to the rule. They’ve spent untold
sums lobbying
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against it with a well-armed team of D.C. lobbying shops. And at the
ABA antitrust meeting this month, a representative from the Chamber
committed publicly on a panel that they would file a legal challenge
against the final rule.

Yet despite the Chamber’s hostility to the rule, the ban has
received bipartisan support. A bipartisan bill to ban noncompetes was
reintroduced last year
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Congressional Republicans generally have done the Chamber’s bidding
at every turn to try and thwart the administration’s anti-monopoly
actions, such as recently passing a resolution condemning a CFPB rule
capping overdraft fees. But they’ve backed off on the noncompete
rule.

“There haven’t been any appropriation riders or other legislative
attacks on this rule because it’s an issue everyone can basically
agree on,” said Anna Aurilio, the federal campaign director at the
Economic Security Project.

But the Chamber has more on its mind than just noncompetes. Section 5
rulemaking could be used to ban exclusive-dealing arrangements,
“pay-for-delay” deals between pharmaceutical companies and generic
manufacturers, and even potentially tech platforms that
self-preference their own content over third-party sellers.

Former Republican commissioner Christine Wilson asserted in her
statement opposing the proposed rule
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that it was an unlawful violation of the “major questions
doctrine,” an invented Supreme Court theory that courts can overrule
an agency if it oversteps congressional authorization. The Court has
used it on multiple occasions, and Wilson’s citation likely sets the
stage for the Chamber to call the noncompete ban, or Section 5
rulemaking in general, a major questions doctrine violation.

Katherine Van Dyck, then a senior legal counsel with the American
Economic Liberties Project, told the _Prospect _last year that “the
FTC’s powers have been upheld again and again by past Supreme Courts
so there’s clear precedent here.” Van Dyck now works
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attorney adviser to the FTC.

The Supreme Court has been willing to constrain the FTC’s powers in
the recent past, however. In 2021, the FTC was stripped of its ability
to obtain monetary restitution in cases where companies harmed
consumers on a first offense.

A legal opinion on rulemaking authority would at least give the agency
clarity on its own powers. And by starting with the noncompete ban, an
incredibly popular concept, the FTC makes it difficult for judges to
side with businesses trying to suppress workers’ wages.

That’s the fight in the near future; for today, the ability of
businesses to lock their workers into their jobs has been blocked, if
only temporarily.

UPDATE: The commission finalized the rule today along party lines. The
final rule also bans Training Repayment Agreement Provisions (TRAPs)
if they “function to prevent a worker from seeking or accepting
other work or starting a business after the employment associated with
the TRAP.” This is an upgrade from the initial language. Now the
fight shifts to the courts.

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David Dayen is the Prospect’s executive editor. His work has
appeared in The Intercept, The New Republic, HuffPost, The Washington
Post, the Los Angeles Times, and more. His most recent book is
‘Monopolized: Life in the Age of Corporate Power.’

Luke Goldstein is a writing fellow at the American Prospect. He
previously worked as a reporter/research associate at the Open Markets
Institute and interned at the Washington Monthly.

* Noncompete agreements; Federal Trade Commission; Rulemaking;
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