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In a formal comment filed this week with the Federal Trade Commission ("FTC"), more than a dozen free-market leaders and organizations, led by the Center for Individual Freedom ("CFIF"), expressed strong opposition to the FTC's proposed regulation imposing a nationwide prohibition on voluntary employer-employee noncompete agreements.

In addition to constituting "an unconstitutional executive branch overreach unlikely to withstand judicial scrutiny," the proposed ban on private noncompete agreements exceeds the FTC's authority, threatens our nation's economy and undermines important intellectual property protections.

Leaders and representatives from the following organizations were included on the comment: Center for Individual Freedom, American Commitment,  American Consumer Institute, Americans for Tax Reform, Citizens Against Government Waste, Competitive Enterprise Institute, Consumer Action for a Strong Economy, Less Government, National Taxpayers Union, Open Competition Center, Small Business & Entrepreneurship Council, and Taxpayers Protection Alliance. 

Read the comment here (PDF) and below:

COALITION COMMENT 

OPPOSING PROPOSED PROHIBITION OF NONCOMPETE AGREEMENTS IN EMPLOYMENT

Re:  Non-Compete Clause Rulemaking, Matter No. P201200, Document ID FTC-2023-0007-0001  

March 7, 2023

On behalf of the undersigned organizations and the millions of members, supporters and taxpayers across America whom we collectively represent, we write to express our strongest opposition to the Federal Trade Commission’s (FTC) proposed regulation imposing a sudden, nationwide, blanket prohibition on voluntary employer-employee noncompete agreements.  

As an initial and consequential matter, the FTC’s proposal constitutes an unconstitutional executive branch overreach unlikely to withstand judicial scrutiny.  

Just last year in West Virginia v. EPA, the United States Supreme Court by a 6-3 majority overturned an Environmental Protection Agency (EPA) regulation attempting a similarly wholesale remaking of our nation’s power grid via “green energy” mandates and subsidies.  In the words of Justice Neil Gorsuch, “The Constitution does not authorize agencies to use pen-and-phone regulations as substitutes for laws passed by the people’s representatives.”  This ruling continued a growing line of decisions rejecting administrative agency claims of authority over issues of “vast economic and political significance” where Congress has not clearly empowered them with that claimed authority.  

Ignoring that Supreme Court guidance, the FTC now seeks to completely prohibit voluntary noncompete agreements, which the FTC itself acknowledges will affect an astounding 30 million workers.  By any reasonable measure, that qualifies as an issue of “vast economic and political significance” as defined by the Supreme Court.  Not only would the proposed rule supersede the laws of all 50 states that currently govern employment relationships, it would undermine employers’ rightful ability to protect intellectual property – patents, copyrights, trademarks and trade secrets – which largely account for America’s competitive advantage over the rest of the world in an increasingly competitive globalized economy.  

It's also important to note the value of noncompete agreements themselves in our increasingly information-based global economy.  

Noncompete agreements are simply mutual agreements between employers and employees at the beginning of the employment relationship governing the degree to which the employee can compete directly or indirectly with the employer at the end of that relationship.  For example, the agreement can stipulate that for a limited time and a limited geographical area, the departing employee won’t join a direct competitor, start up a competing company offering the same products or services, develop competing products or services or recruit colleagues to leave the employer to join them at a new competitor business.  

Accordingly, noncompete agreements can serve important functions for businesses and protection of critical intellectual property, rather than simply restricting employee freedom without any legitimate business interest of employers.  Noncompete agreements exist to protect such things as trade secrets, confidential information, client or customer relationships or specialized training.  

Moreover, it's important to emphasize that courts at the federal level and across all 50 states already scrutinize noncompete agreements closely, and refuse to enforce them when their provisions are unfair.  For instance, courts won’t enforce provisions that don’t center on the employer’s legitimately sensitive business interests, that aren’t reasonable restricted in duration, that extend beyond a reasonable geographic location or are otherwise unfair to the employee.  

Regardless of one’s opinion on the merits of noncompete agreements generally, the FTC’s proposed wholesale nationwide blanket ban on private noncompete agreements thus exceeds its authority, threatens our economy and undermines important intellectual property protections.  The FTC was created with the limited purpose of policing “unfair methods of competition,” and its enforcement is limited to such unfair practices.  The fact that all 50 states choose to regulate noncompete agreements differently shows that they’re not inherently “unfair methods of competition.”  

On behalf of millions of supporters across the nation, we therefore urge the FTC to reconsider this unconstitutional and unwise proposal prior to inevitable judicial challenge and needless expense and waste of resources.  Thank you for your attention to this critical matter.  

Sincerely,