Federal Trade Commission (FTC) Chair Lina Khan is once again overreaching her statutory authority and throwing a wrench into the economy.  On April 23, 2024, the FTC voted 3-2 to ban non-compete agreements in all new employment contracts, and overturn existing contractual agreements other than for senior executives.  This new rule applies to every industry and worker in the country and could have harmful effects on trade secrets and intellectual property (IP) rights.  This regulation is a massive expansion of the FTC’s power and another example of Chair Khan attempting to regulate every aspect of the economy even if, as in this case, the agency has no explicit authority to act on this matter.   

Non-compete agreements are common in employment contracts that are meant to protect businesses IP and investments in employee training.  Typically, the non-compete agreement stipulates that an employee cannot leave their job and move to a competitor in the same industry for a certain period of time.  According to the FTC, approximately 30 million workers in the U.S. are bound to a non-compete agreement.   The FTC also claims that this ban will result in an average of 17,000 – 29,000 more patents each year and $400 - $488 billion in increased wages for workers over the coming decade. 

But U.S. Chamber of Commerce President and CEO Suzanne Clark, which is challenging the ruling in court, said the decision is “a blatant power grab that will undermine American businesses’ ability to remain competitive.”  She added that it “sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy.  And FTC Commissioner Andrew Ferguson (R) said that the agency “lacked authority” to pass the rule, and it is therefore “unlawful.”

The FTC has historically protected consumers and gone after individual corporations when they violate antitrust and competition law.  The agency was guided by the consumer welfare standard for decades, which Chair Khan has long since abandoned.

This is not the first time that Chair Khan has gone where no FTC has gone before. 

Thankfully, this rulemaking, like several others that Chair Khan has pushed through, is likely to be struck down in court.  The Supreme Court ruled that under the major questions doctrine, which many believe applies to the non-compete rulemaking, federal agencies are required to point to clear authorization from Congress when implementing regulations on an issue of “vast economic and political significance.”  The lack of statutory authority will also make it likely the decision will be overturned.  Chair Khan’s losses in court, where her radical approach to antitrust law has been rejected, along with her outrageous request for a 37 percent budget increase for fiscal year 2024, were among the reasons she was named Citizens Against Government Waste’s September 2023 Porker of the Month.

The FTC has been continually attempting to expand its regulatory reach beyond its statutory authority from the moment that Chair Khan was sworn in.  This unilateral ban on non-compete agreements is a bad policy that will harm IP rights and trade secrets and represents another likely loss in court for Chair Khan.