Major Questions Doctrine Issues Come Into Focus In Lawsuit Challenging FTC’s Ban On Non-Competition Covenants

Vincent Jackson
Vincent Jackson

Last April, the Federal Trade Commission proposed a rule that would enact a near-complete ban on non-competition covenants.

This rule was immediately challenged in court by multiple business interests.  One of the cases, Ryan, LLC v. Federal Trade Commission, has proceeded to briefing over whether a preliminary injunction should block the FTC’s actions.

In opposing a request for preliminary injunction, the FTC has staked out an interesting position relating to the “major questions” doctrine.  In a nutshell, the major questions doctrine requires Congress to clearly authorize federal agency actions in certain cases in which the agency action would have a significant economic impact. The doctrine applies to “extraordinary” cases, in which “the history and breadth of the authority that  the  agency  has  asserted,  and  the  economic  and  political  significance  of  that  assertion, provide a reason to hesitate before concluding that Congress meant to confer such authority.” West Virginia v. EPA, 597 U.S. 697, 721 (2022).

The doctrine has become increasingly relevant in recent Supreme Court decisions addressing the scope of federal agencies’ rule-making power.  In the litigation challenging the FTC’s proposed non-compete ban, the FTC has adopted an unsurprisingly nonchalant approach to its proposed non-compete ban as a mere extension of the authority Congress delegated it. It states that “the  Commission  is  not  claiming  the  authority to regulate employer-employee relationships writ large or wading outside its expertise in competition. Rather, it used its rulemaking authority to prevent a particular unfair  method  of  competition,  as Congress  explicitly  directed  it  to  do.”

The FTC’s argument appears to draw a distinction without a difference. A previous blogpost took issue with a blanket ban of all non-compete agreements, while acknowledging that non-competes make little sense for unskilled or low-wage workers.  But stating that a near-total ban on a common (and important) contractual clause in tens of thousands employment agreements between executives, owners, and corporate entities is not “regulat[ing] employer-employee relationships writ large” is a stunningly disingenuous statement. This is particularly so given the history of non-competes being subject to state law for decades, and the FTC never having bothered to attempt to previously regulate non-competes.

We can expect an imminent ruling on the preliminary injunction issue in this case. Stay tuned.

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