The U.S. Chamber of Commerce appreciates the opportunity to submit comments regarding the Commission’s proposed Noncompete Rule.[1]
The Chamber and its membership are strongly opposed to the Proposed Rule. It would categorically ban nearly all noncompete agreements—regardless of individual circumstances, such as a worker’s skill, job responsibilities, access to competitively sensitive and proprietary information, bargaining power, or compensation—and require that organizations rescind all existing agreements and provide notice to affected workers of such rescission. Such a proposal fails to recognize that noncompete agreements can serve vital procompetitive business and individual interests—such as protecting investments in research and development, promoting workforce training, and reducing free-riding—that cannot be adequately protected through other mechanisms such as trade-secret suits or nondisclosure agreements. For centuries, courts have recognized the procompetitive benefits of noncompete agreements and balanced those benefits against any negative costs imposed by particular noncompete agreements. As perhaps acknowledged by the Commission’s request for comments on narrower alternatives, the Commission’s categorical ban would sweep in millions of noncompete agreements that pose no harm to competition, and in fact benefit the U.S. business community, economy, workers, and consumers.
The Commission should withdraw the Proposed Rule for three basic reasons. First, the Commission is not authorized under the Federal Trade Commission Act to promulgate binding regulations related to “unfair methods of competition.” The Commission relies on Section 6(g) of the Act, but that provision grants the Commission the narrow authority to develop internal procedural rules related to its powers to investigate suspected violations of the law and to publish reports. Section 6(g) does not empower the Commission to issue sweeping substantive regulations that bind private parties. The major-questions doctrine also cuts firmly against reading such powers into the Act.
Second, noncompete agreements are not categorically “unfair,” as history and precedent demonstrate. Noncompete agreements have never been considered per se violations of the antitrust laws. On the contrary, courts have long recognized that such agreements serve a range of procompetitive ends. If the statutory phrase “unfair methods of competition” allows the Commission to prohibit agreements not shown to limit competition in any way, then the Commission’s authority under the FTC Act would lack any intelligible limiting principle and reflect an unconstitutional delegation of legislative power. And its proposal to retroactively invalidate existing noncompete agreements raises serious due-process concerns.
Third, the Commission’s proposal would represent arbitrary and capricious decision-making in violation of the Administrative Procedure Act. The Proposed Rule’s justifications for a categorical ban on noncompete agreements rest on an inaccurate and selective assessment of the available research. In particular, the Commission’s dismissal of business justifications for noncompete agreements ignores the inadequacy of alternatives and elevates speculative competitive harms over well-recognized procompetitive benefits. The Proposed Rule also would generate considerable uncertainty and frustrate compliance with other laws.
[1] See Fed. Trade Comm’n, Notice of Proposed Rulemaking: Non-Compete Clause Rule, RIN 3084-AB74, at 213-214 (Jan. 5, 2023).
