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TL;DR: The FTC banned non-compete agreements under Sections 5 and 6(g) of the FTC Act, except for senior executives. However, the Supreme Court's recent decision in Loper Bright Enterprises v. Raimondo overturned Chevron deference, which could impact the enforceability of the FTC's broad rulemaking authority. This has sparked legal debates, and while the FTC’s ban is a significant move towards promoting competition, its legality may face challenges in the courts. The likely forthcoming and ongoing litigation will likely clarify the extent of the FTC's (and other agencies’) power post- Chevron . Intro: For years, many employers have included “Non-Compete Agreements” in contracts to prevent employees from working in similar roles after leaving the company, often with geographical and/or time limits (e.g., a widget salesperson barred from selling widgets within 100 miles for 1 year after leaving). Some states were more friendly to these agreements than others, but the federal government had ignored the issue until now. The Ban: Earlier this year, the FTC announced a ban on non-compete agreements. ( Source ) (16 C.F.R. §910, et seq. ) After the final rule was published in the Federal Register, it goes into effect soon (Sep. 4, 2024). This 500+ page decision followed years of state-level management of these issues, where most contract law is developed. Notably, the only real carve-out is for existing agreements with senior executives, meaning ordinary people are the ones protected by this ban. The rule arose under Section 5 and 6(g) of the Federal Trade Commission Act (15 U.S.C. §45, 46(g)), which permits the FTC to create and enforce rules to promote and protect competition and free market behavior. But is this broad authority permissible under our Constitution and principles of government? Chevron: Can agencies make their own policies and regulations? This question touches on the foundational principle of the separation of powers in American government. The federal government is divided into three branches: the Executive (led by the President, who enforces laws and oversees federal agencies), the Legislature (comprised of the House and Senate, who write laws and set policies), and the Judiciary (the Supreme Court and lower courts, which interpret laws and apply them to specific cases). Ideally, each branch operates within its own domain without overstepping. However, these boundaries have blurred over time. Some argue that the Executive branch has gained excessive power as Congress increasingly defers to agencies, often using broad language that leaves significant details for these agencies to decide. At the same time, the Judiciary is sometimes seen as overreaching, acting as a 'super legislature.' In an ideal scenario, Congress would write clear laws and policies for the Executive to enforce, and the Judiciary could easily look at what they’re doing to determine if it’s legal or not. In constitutional law, this principle is known as the “non-delegation doctrine.” The non-delegation doctrine prohibits Congress from transferring its legislative authority to other entities, such as executive agencies. Under this doctrine, Congress must provide clear and specific guidelines when delegating any of its powers, ensuring that agencies do not overstep their boundaries by effectively creating new laws or policies. "But we said that the constant recognition of the necessity and validity of such provisions, and the wide range of administrative authority which has been developed by means of them, cannot be allowed to obscure the limitations of the authority to delegate, if our constitutional system is to be maintained." Schechter Poultry Corporation v. United States , 295 U.S. 495 (1935) (citing Panama Refining Co v. Ryan Amazon Petroleum Corporation , 293 U.S. 388 (1935)). The doctrine is rooted in the separation of powers, aimed at maintaining a balance among the branches of government by ensuring that only the legislative branch makes laws, while the executive branch enforces them. Although the Supreme Court has rarely struck down laws on non-delegation grounds, the doctrine remains an important concept in discussions about the limits of agency power and the role of Congress in lawmaking. See e.g. "It is hardly surprising that, until today's decision, the Court had not relied upon [Shechter] almost since the day it was decided." National Cable Television Association, Inc v. United States Federal Power Commission , 415 U.S. 352 (1974). Yet, as government functions have grown more complex, Congress often lacks the expertise to legislate the specifics, leading to broader delegations of authority. This raises concerns when agencies, which are not directly accountable to voters, effectively create new policies by filling in these gaps. Should this expansion of agency power be a concern in a democratic society? The Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837 (1984) decision established a two-step framework for courts to use when reviewing an agency’s interpretation of a statute. At step one, courts would determine whether Congress had directly addressed the specific issue in question. If the statute was clear, the court would apply that clear meaning. However, if the statute was ambiguous, step two required the court to defer to the agency’s interpretation as long as it was deemed “reasonable” or “permissible,” even if the court might have interpreted the statute differently on its own. This deference was based on the idea that agencies possess expertise in their specialized fields and that they are politically accountable, albeit indirectly, through the executive branch. Over time, the Chevron doctrine became a cornerstone of administrative law, significantly expanding the power of federal agencies to interpret and implement statutes. It effectively allowed agencies to fill in the gaps of ambiguous laws, often resulting in broad and varying interpretations that could shift with changes in administration. Courts frequently relied on Chevron to uphold agency decisions, which some argued led to a concentration of power within the executive branch and a reduction in the judiciary's role in statutory interpretation. Loper Bright: The Loper Bright Enterprises v. Raimondo , 603 U.S. __ (2024) decision overruled Chevron , marking a significant shift in the balance of power between the judiciary and federal agencies. The Supreme Court, in this case, revisited the principles underlying Chevron and found them incompatible with the Administrative Procedure Act (APA). The Court emphasized that the APA requires courts to "decide all relevant questions of law" and to "interpret statutory provisions" independently, without deferring to agency interpretations simply because a statute is ambiguous. Loper Bright, at pp. 20-22. Loper Bright rejected the assumption that statutory ambiguities imply an implicit delegation of authority to agencies. The Court clarified that resolving ambiguities is a judicial function, and courts must use their own interpretive tools to determine the best reading of a statute, rather than deferring to the agency’s view. The ruling also dismantled the notion that agencies are inherently better positioned to interpret ambiguous statutes due to their expertise, asserting that courts are fully capable of considering an agency’s perspective without surrendering their judgment. This decision significantly limits agency "rulemaking" authority by curbing the broad deference agencies previously enjoyed under Chevron . Now, agencies must operate within clearer boundaries set by the courts, which will no longer automatically defer to agency interpretations of ambiguous statutes. This shift enhances the judiciary's role in ensuring that agencies act within the scope of their delegated authority and adhere to the intent of Congress as discerned by the courts. The overruling of Chevron in Loper Bright effectively restores the judiciary’s central role in statutory interpretation, signaling a move toward greater judicial oversight of agency actions and a more restrained administrative state. In Loper Bright Enterprises v. Raimondo , the Supreme Court did not eliminate Skidmore deference but rather distinguished it from Chevron deference, emphasizing its continued relevance in judicial review. Skidmore v. Swift & Co. , 323 U.S. 134 (1944) established that while agency interpretations of statutes are not binding on courts, they can still be persuasive depending on factors like the agency's expertise, the thoroughness of its reasoning, and its consistency with past interpretations. The Loper Bright decision reaffirmed that courts may give Skidmore deference to agency interpretations, but only to the extent that the agency's reasoning is persuasive. Loper Bright, at pp. 18-26. This means that while agencies' views are still considered, courts retain full authority to interpret statutes independently, without being bound to defer to agency interpretations under the more rigid Chevron framework. In essence, Loper Bright shifted the focus back to judicial independence in statutory interpretation, while still allowing Skidmore deference where appropriate, based on the merits of the agency's reasoning rather than on a presumption of deference. To be clear, this is how our government was designed to function. Courts specialize in interpreting language, whether in contracts, statutes, regulations, or the Constitution, and applying it to the specific cases before them. While proponents of agency deference often highlight the expertise of agency personnel, they sometimes overlook that courts regularly consider expert testimony in their proceedings. The Supreme Court didn’t eliminate expert input; they just eliminated expert veto power. By returning interpretive powers to the courts, we also gain insight into the effectiveness of the legislative process itself. Just as a breach of contract case can reveal the skill of the contract's drafter, litigation over a statute can shed light on the competence of its authors. And if you're dissatisfied with your contract-drafting attorney, you can hire a new one. Similarly, if you disagree with how a statute is being interpreted and applied, you have the power to push your representatives to revise the law. What Now? Is the FTC’s ban constitutional and enforceable? Maybe. But there are sure to be fights over this in the court system. In fact, there already are. It’s still early for these cases to make their way up the appellate chain, as I was unable to find anything in the Circuit Courts. However, District Courts are already grappling with the issue. The Middle District of Tennessee has cited the concerns surrounding this agency move post- Chevron in Permobil, Inc. v. Westphal , 3:23-cv-00586 (M.D. Tenn. Aug 01, 2024). The court didn’t make a definitive ruling on the ban’s legality but noted that it is “likely to result in litigation” in light of Loper Bright ( Id. at p. 2). If there are any developments in the appellate courts, I’ll follow up on this article, as I find the topic interesting from both legal and economic perspectives. Final Thoughts The FTC’s ban might be a rare example of an agency decision that I agree with. Ordinarily, I would prefer this to come from the legislature, and perhaps this decision and subsequent litigation will push Congress to act. But for now, a rule that promotes more competition in the labor market is a welcome sight. I generally oppose restraints on labor, whether through occupational licensing, other regulations, or in this case, contractual restrictions. But do non-competes have a place in a healthy, functioning economy? Yes. Proponents argue that these agreements protect proprietary information and prevent employees from leaving after receiving paid training and valuable insights from their company. This boosts the company’s “return on investment,” which should result in lower prices (for a corollary, imagine the price of your car if the manufacturer had to rebuild its plants and factories every year). But is a non-compete agreement a necessary tool to address these concerns? In a rare move of solidarity, the Defend Trade Secrets Act (“DTSA,” 18 U.S.C. §1831, et seq .) was unanimously confirmed in the Senate in 2016 after being nearly unanimously passed in the House. This federal legislation complements existing state-level protections, as most states had already adopted some form of the Uniform Trade Secrets Act. The DTSA protects trade secrets while allowing employees to work freely without divulging such information. This provides a less restrictive means of safeguarding companies’ proprietary information than a flat-out non-compete agreement. However, it doesn’t address concerns about protecting a company’s “return on investment.” In my view, these costs should be seen as part of doing business. If companies are truly concerned about protecting their investments, they should focus on encouraging their employees to stay consensually rather than strong-arming them into doing so through the fear of unemployment within their field. Overall, I think the move away from non-competes is a good thing and should have a positive impact on the economy. However, it’s important to note that this portion of Title 15 is left solely to the FTC to enforce, unlike the preceding Sherman Antitrust Act (15 U.S.C. §1 - 38) which allows for private enforcement (15 U.S.C. §15). So, while the rule may be useful as a defensive tool, lawyers and employees should be cautious about the scope and applicability of this new rule (arguments about its validity and enforceability notwithstanding). Furthermore, in-house counsel and employer-side employment lawyers should review the rule carefully for compliance purposes. Contact Us If you have questions about the topics discussed in this article or need legal assistance related to trade secrets, non-compete agreements, or agency rulemaking, please contact us to schedule a consultation . Disclaimer This blog post is for general informational purposes only and should not be construed as legal advice. The opinions expressed are solely those of the author. This content is considered attorney advertising and does not establish an attorney-client relationship. For specific legal advice tailored to your situation, please consult with a qualified attorney licensed in your jurisdiction. © Wood Law Offices, PLLC. 2024. All rights reserved.

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