MBA, Business Coalition Letter Opposes FTC Non-Compete Ban Proposed Rule

The Mortgage Bankers Association, the U.S. Chamber of Commerce and more than 300 industry trade and business groups sent a letter to the Federal Trade Commission to “unequivocally oppose” a proposed rule that would impose a nationwide ban on nearly all non-compete clauses.

The proposed rule, submitted on Jan. 5,  would make it illegal for an employer to enter into or attempt to enter into a noncompete with a worker; maintain a noncompete with a worker; or represent to a worker, under certain circumstances, that the worker is subject to a noncompete. It would apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompetes and actively inform workers that they are no longer in effect.

FTC Chair Linda Khan said by stopping this practice, the agency estimates the proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for nearly 30 million Americans. “Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand,” she said. “By ending this practice, the FTC’s proposed rule would promote greater dynamism, innovation and healthy competition.”

However, the MBA/coalition letter strongly disagreed with the crux of the FTC’s argument, saying the FTC lacks the constitutional or statutory authority to issue such a rule and, in attempting to do so, the agency is improperly usurping the role of Congress.

“Moreover, this sweeping rule would invalidate millions of contracts around the country that courts, scholars and economists have found entirely reasonable and beneficial for both businesses and employees,” the letter said.

The letter said Congress never granted the FTC the statutory authority to issue rules regulating competition, such as the contractual relationship between employers and employees, which even advocates for action in this area, like Sen. Chris Murphy, D-Conn., recognize.

“Rather, Congress granted targeted statutory authority to FTC to issue rules to protect consumers, such as to prevent fraud and false advertising,” the letter said. “The FTC’s authority with respect to competition issues is limited to adjudicating individual cases where competition issues are involved where the FTC must consider the factual context and reasonableness of conduct in each such matter.

The letter said the FTC has not attempted to promulgate a competition rule for decades, across administrations of both parties, noting in the past, Congress curbed FTC’s excesses with appropriations riders. Additionally, the letter pointed out the Supreme Court recently recognized the important Constitutional limitations on the ability of executive agencies to issue major rules such as that proposed here without clear guidance from Congress.

“In cases involving other agencies, courts have invoked the major questions and non-delegation doctrines to strike down agency excesses and to preserve the role of elected officials in addressing important issues,” the letter said. “We urge Congress to reassert its Constitutional role to resolve issues of national importance and limit attempts to usurp this authority through unauthorized regulatory overreach.”

Additionally, the letter said the FTC’s blanket ban on noncompete clauses is “vastly overbroad” and likely will harm both employees and employers. “Courts, scholars and economists all have found that noncompete clauses, when properly used, encourage investment in employees and help to protect intellectual property,” the letter said. “Forty-seven states permit noncompete clauses, which have traditionally been an issue of state law.”