TheCorporateCounsel.net

Last week, Meredith blogged about the inevitable challenge to the FTC’s non-compete ban filed by the US Chamber of Commerce.  Given the SEC’s recent experience in the federal courts, I think many of us are inclined to believe that a court will ultimately strike down or pare back the FTC’s ban.  But University of Chicago Law School professors Jonathan Masur & Eric Posner say that the ban is legal, and it’s not a close call.  Here’s an excerpt from their recent post on the ProMarket Blog:

The FTC’s statutory authority to issue the noncompete rule is not an edge case. Section 5 of the FTC Act of 1914 authorizes the FTC to prevent firms from engaging in “unfair methods of competition.” Congress used this phrase, which was novel at the time and deliberately broad, to encompass anticompetitive behavior that was both already covered by the antitrust laws (which prohibited firms from using “restraints of trade” and from “monopoliz[ing]” markets) as then interpreted by the courts and that reached beyond them.

Like countless other regulatory agencies before and since, the FTC was entrusted with authority to interpret the law, effectively to make policy within the law’s ambit. As a noncompete is just a restraint of trade that restricts competition, the statute plainly authorizes the FTC to issue a rule regulating noncompetes.

While the authors acknowledge that the FTC has typically used case-by-case adjudication to make policy instead of rulemaking, it’s clear that Congress also gave the agency the authority to “make rules and regulations for the purpose of carrying out the provisions of” the FTC Act in section 6(g).

– John Jenkins