A Brief Note on the FTC Noncompete Rule

Recently, tech people have been posting about the FTC’s new rule banning noncompete agreements. I will leave commentary on the substance of the rule to others, because I like to keep the posts here politically neutral¹. But I did want to talk briefly about the procedure of agency rulemaking, since I don’t think most programmers (even in the United States) are familiar with the lifecycle of a federal agency rule.

When an impactful rule like this one is announced, and gets an effective date, it’s actually in the middle of its road to adoption, not the end. It has gone through a notice and comment process, where the public is able to provide feedback on the rule to which the agency must respond. But at this point, the rule has not gone through judicial review, which means its future is still highly uncertain.

I have seen many people dismissing concerns that the rule will be overturned when challenged in court. They typically say something like, “Congress gave the FTC the authority to pass this rule,” and leave it at that. But such a blanket statement fails to capture the reality of the process that will actually occur.

In practice, Congressional grants of authority are almost always vague. If there was a statute passed by Congress that said, “The FTC shall have the authority to decide whether noncompete clauses in employment contracts can be enforced,” then perhaps this would be more straightforward. But even then, you would probably see lawsuits concerning what precisely constitutes a “noncompete clause”, and which “employment contracts” are covered.

In this case, there is nothing so specific. The FTC declared this rule pursuant to a general grant of authority to regulate anti-competitive behavior. So, when the lawsuits begin, the Executive branch will have to defend the rule by showing that Congress’s wording intended to grant it the authority to regulate specific clauses in contracts between employers and employees, even though such clauses are not explicitly enumerated in the grant of authority.

Because this rule is so far-reaching, the “major questions doctrine” is likely to be invoked by the parties challenging the rule. The major questions doctrine is a doctrine of judicial review holding that if Congress wants an agency to be able to promulgate a particularly impactful type of rule, the statute has to say so explicitly.

So, in a nutshell, it is very premature to assume that this rule is the new law of the land. It is always difficult to guess how the judicial process will unfold, but if past cases are any indication, defending this rule will not be trivial. The Executive branch may prevail — but they very well might not.

That said, as with everything here on Computer, Enhance, I don’t want you to take my word for any of this. I much prefer people to experience things themselves, so they can learn how things work and draw their own conclusions.

To that end, if this is a topic that interests you, I would recommend taking an hour to listen to the Supreme Court oral arguments in West Virginia v EPA. This is the best recent case — it’s from 2021 — that covers the major questions doctrine, and I suspect the eventual “FTC noncompete rule case” arguments will unfold in a similar fashion.

Finally, to my original point that you cannot assume the FTC rule will survive based purely on a general grant of authority: despite having arguably a more specific grant of authority than is at issue in this FTC rule, the government lost West Virginia v EPA, specifically because of the major questions doctrine.

1. A say “politically”, because as I’m sure most people have already noticed, they are far from neutral on programming issues!