Por: Mizael Ramos Ortiz
“It is emphatically the province and duty of the judicial department to say what the law is.”[1]
“Judges are not experts in the field, and are not part of either political branch of the Government.”[2]
Introduction
The story of Bob the engineer, who cannot work for a competing firm should he choose to leave his current employer, is no longer just about engineers, nor is it about policy debates surrounding the enforcement or prohibition of non-competes. Neither is it about economic or business considerations, such as the protection of business owners’ interests, notwithstanding their greed. This story has evolved into a matter of administrative law. Lawyers and courts are now the focal point of this issue, and it is the legal field which will hold the center of attention until the Supreme Court, or an unchallenged lower court, resolves the fundamental question: who has the power to decide?
This short article aims to evaluate said question and criticize the turn of events, considering the recent Supreme Court case, Loper Bright.[3] Reasonable minds might differ on the policy debates behind non-compete clauses; I will defer to the experts on said topic. I will focus exclusively on the legal controversies and one of the cases that sprouts this specific situation.[4]
A. Ryan, LLC v. FTC
These recent developments began with the Federal Trade Commission’s (“FTC”) promulgation of a final rule prohibiting the enforcement of non-compete clauses.[5] This ruling classified all non-compete clauses as “unfair method[s]of competition”.[6] It barred the prospective enforcement of all non-competes and only allowed the continuing enforcement of existing non-compete clauses pertaining to senior executives.[7] The FTC initiated the rule-making procedure in 2023 and received around 26,000 public comments.[8] The final ruling, which had the effect of prohibiting non-competes,[9] defined them as follows:
[A] term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from: (i) [s]eeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (ii) [o]perating a business in the United States after the conclusion of the employment that includes the term or condition.[10]
Finally, nothing in said ruling barred the application of trade-secret laws or non-disclosure agreements.[11]
In the summer of 2024, and prior to the effective date of the ruling,[12] a group of plaintiffs, including the U.S. Chamber of Commerce, filed an amended complaint for declaratory and injunctive relief.[13] They asked the Northern District of Texas to set aside the FTC’s non-compete ban on the basis that: (1) the FTC lacked the authority to promulgate this ruling and (2) because it was arbitrary, capricious, or otherwise contrary to law.[14] Consequently, both parties filed for summary judgment.[15] On August 20, 2024, the Northern District Court granted the plaintiffs’ summary judgement, setting aside the non-compete ban on both grounds.[16]
It is noteworthy that the court’s analysis in Ryan, LLC v. FTC begins by citing Loper Bright.[17] This recent Supreme Court opinion held that courts may not defer to the interpretation an agency makes of its own statute, but “must exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”[18] In a way, this sets the tone for the rest of the analysis.
The first claim was that the FTC acted outside of the bounds of its originating statute, the Federal Trade Commission Act (“FTC Act”).[19] Section 5 of the FTC Act grants the FTC the power to “prevent persons, partnerships, or corporations [with the exception of banks and other carriers regulated by other federal laws]. . . from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.”[20] The section also enables the FTC to carry out administrative hearings and impose sanctions in order to carry out its duties.[21] Section 6 of the FTC Act lists additional powers the FTC has, including, “[f]rom time to time classify corporations and . . . make rules and regulations for the purpose of carrying out the provisions of this subchapter.”[22]
Therefore, the FTC is authorized to make rules and regulations to prevent the use of unfair methods of competition, as well as pursuing the prevention of deceptive acts or practices.[23] A plausible reading of this statute would lead to the conclusion that the FTC is authorized to make rulings, following the rule-making procedures, such as the non-compete ban. The Court read it differently. They found that:
By a plain reading, Section 6(g) of the Act does not expressly grant the Commission authority to promulgate substantive rules regarding unfair methods of competition . . . [A]fter reviewing the text, structure, and history of the Act, the Court concludes the FTC lacks the authority to create substantive rules through this method. Section 6(g) is “indeed a ‘housekeeping statute,’ authorizing what the APA terms ‘rules of agency organization procedure or practice’ as opposed to ‘substantive rules.’”[24]
The Court concluded that, where Congress said the FTC had the power to make rules and regulations, it had a fundamental limitation: these rules and regulations could only apply to said agency.[25] The Court supported its reading of the statute with several lines of reasoning. First, they identified that the statute lacked a penalty for when a regulated party was to violate an FTC rule.[26] This, the Court reasoned, is proof that Congress did not intend to delegate substantive rule-making powers.[27] Second, the Court found the placement of the rulemaking power suspect.[28] The fact that it is placed after a classifying power and is “seventh in a list of twelve almost entirely investigative powers,” further supported the idea that Congress did not intend to grant substantive rulemaking power.[29] “Finally, Section 6(g) fails to mention Section 5 or any other substantive authority from where such substantive rulemaking power would stem.”[30] This conclusion, completely disregards the phrase “the provisions of this subchapter.”[31]
The Court crossed one more hurdle to find the FTC was acting outside of its limits. Section 18 of the FTC Act speaks to the authority of the Commission to prescribe rules and general policy statements.[32] This section was also included in the Magnuson-Moss Act.[33] The Court read these sections and concluded as follows:
By enacting the Magnuson-Moss Act, Congress vested the Commission with the power to promulgate substantive rules regarding only unfair or deceptive acts or practices, not unfair methods of competition. Although Section 18 mentions that the limitations regarding rulemaking in the “unfair or deceptive acts or practices” context “shall not affect any authority of the Commission to prescribe rules (including interpretive rules), and general statements of policy, with respect to unfair methods of competition in or affecting commerce,” such statutory language is not an affirmative grant of substantive rulemaking authority to the FTC in the “unfair methods of competition” context.[34]
In concluding that the FTC had acted outside of the authority which the FTC Act had granted it, the Court had found enough to set aside the ruling. They, however, also found that the rulemaking procedure had been arbitrary and capricious.[35] This is because the rule was “unreasonably overbroad without a reasonable explanation.”[36] They persist, “[t]he Rule imposes a one-size-fits-all approach with no end date, which fails to establish a rational connection between the facts found and the choice made.”[37] Additionally, “[t]he Commission’s lack of evidence as to why they chose to impose such a sweeping prohibition—that prohibits entering or enforcing virtually all non-competes, instead of targeting specific, harmful non-competes, renders the Rule arbitrary and capricious.”[38]
Conclusion
I disagree with the opinion. While I do not question the authority of the judicial power “to say what the law is,”[39] I am skeptical of a legislative judicial branch, which is time and time again more willing to substitute Congress’ clear language with its preferred verbiage. We cannot forget that Chevron applied in cases where the statute was ambiguous.[40] In revoking Chevron, the Supreme Court changed the norm for cases in which the statute was ambiguous: it is the duty of the Court to say what the law is.[41] In cases where Congress is clear—as in this case—it is not the province and duty of the Court to correct Congress’ actions.
In a second, perhaps more aesthetic position, I find the use of this method forceful. The Court looked straight into a clear statute and found, through creative hermeneutics, that the FTC lacked Congressional authority.[42] Yet, in my opinion, the Court had a better interpretative method to reach this conclusion. For one, the revamped Major Questions Doctrine would have provided a simpler route toward a solution.[43] As per the FTC themselves, there is no question that this ruling had a major impact on business in all 50 states.[44] There is also no question that Congress did not specifically authorize the FTC to regulate non-compete clauses. Applying the Major Questions Doctrine would have flipped this case over on its head. In situations of major impact such as this one, Congress was required to grant specific authority, and it did not.[45] That would have been sufficient to resolve the case, and it would have maintained respect for the separation of powers.[46] Instead, the Court imposed a questionable interpretation and stayed what is otherwise a legal rule.
Thus, Bob and every other engineer and professional will have to wait. Their future, for better or worse, will not lie in the hands of their peers or representatives in Congress, but rather will depend on the pens of judges and the arguments of counsel.
*El autor es estudiante de tercer año de la Escuela de Derecho de la Universidad de Puerto Rico y redactor del séptimo volumen de InRev. Posee un bachillerato en Ciencias Naturales con concentración en Estudios Interdisciplinarios.
[1] Marbury v. Madison, 5 U.S. 137, 177 (1803).
[2] Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 865 (1984).
[3] Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024).
[4] Other cases are Props. of the Vills. v. Fed. Trade Comm’n, 5:24-cv-316-TJC-PRL (M.D. Fla. Aug. 15, 2024) and ATS Tree Servs. v. Fed. Trade Comm’n, Civil Action 24-1743 (E.D. Pa. Jul. 23, 2024).
[5] See Non-Compete Clause Rule, 16 C.F.R. § 910 (2024).
[6] Id. § 910.2 (a).
[7] Id.
[8] See Press Release, Federal Trade Commission, FTC Announces Rule Banning Noncompetes (Apr. 23, 2024), https://www.ftc.gov/news-events/news/press-releases/2024/04/ftc-announces-rule-banning-noncompetes.
[9] See 16 C.F.R. § 910.
[10] Id. § 910.1.
[11] See Id. § 910.
[12] Ryan LLC v. FTC, No. 3:24 Civ. 00986-E, slip op. at 27 (N.D. Tex. Aug. 20, 2024).
[13] Id. at 8.
[14] Id. at 13.
[15] Id. at 8-9.
[16] Id. at 14, 26.
[17] Id. at 12.
[18] Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 412 (2024).
[19] Ryan, LLC, slip op. at. 14.
[20] Id. at 15 (quoting Federal Trade Commission Act § 5, 15 U.S.C. § 45 (2011)).
[21] See 15 U.S.C. § 45.
[22]. Id. § 46(g).
[23] Id. § 45.
[24] Ryan, LLC, slip op. at 16-17(emphasis added) (quoting Chrysler Corp. v. Brown, 441 U.S. 281, 310 (1979).
[25] Id. at 22; See National Petroleum Refiners Ass’n v. FTC, 482 F.2d 672, 674 (D.C. Cir. 1973).
[26] Ryan, LLC, slip op. at 18.
[27] Id. at 19.
[28] Id. at 18.
[29] Id. at 18-19.
[30] Id. at 19.
[31] Federal Trade Commission Act § 6, 15 U.S.C. §46(g) (2011) (“to make rules and regulations for the purpose of carrying out the provisions of this subchapter”).
[32] See Unfair or deceptive acts or practices rulemaking proceedings, 15 U.S.C. §57a (2024).
[33] Magnuson Moss Warranty-Federal Trade Commission Improvements Act, 88 Stat. 2183, §202 (1975).
[34] Ryan, LLC, at 21 (emphasis added).
[35] Id. at 26.
[36] Id. at 23-24.
[37] Id. at 24 (internal quotations marks omitted).
[38] Id.
[39] See Marbury v. Madison, 5 U.S. 137, 177 (1803).
[40] See Chevron U.S.A., Inc. v. NRDC, Inc., 467 U.S. 837, 865 (1984).
[41] Loper Bright Enterprises v. Raimondo, 603 U.S. 369, 412 (2024) (“Chevron is overruled. Courts must exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires.”).
[42] See Ryan, LLC, slip op. at 13.
[43] This doctrine states that agencies must show direct and explicit Congress authorization when ruling over issues of vast economic and political significance. See NFIB v. OSHA, 595 U.S. 109, 117 (2022); West Virginia v. EPA, 597 U.S. 697, 723-25 (2022); Biden v. Nebraska, 600 U.S. 477, 480-81 (2023). For a critical analysis of this doctrine, see Daniel T. Deacon & Leah M. Litman, The New Major Questions Doctrine, 109 VA. L. R. 1009 (2023). For an analysis of how the doctrine could’ve applied to the FTC non-compete rule, see Brendan Mohan, Beyond the Ban- One Major Challenge Facing the FTC Non-Compete Rule (November 30, 2023), https://ssrn.com/abstract=4723584 or http://dx.doi.org/10.2139/ssrn.4723584.
[44] Non-Compete Clause Rule, 89 F.R. 38342, 38346 (“the Commission finds that non-competes are in widespread use throughout the economy and pervasive across industries and demographic groups, albeit with some differences in the magnitude of the prevalence based on industries and demographics.”).
[45] Alabama Assn. of Realtors v. Department of Health and Human Servs., 594 U.S. 758, 764 (2021) (“We expect Congress to speak clearly when authorizing an agency to exercise powers of vast economic and political significance.”).
[46] I find the use of the Major Questions Doctrine more respectful of Congress’ legislative power, when compared to a judicial reinterpretation that might not align with the view of Congress or the people who elected them. West Virginia v. EPA suggests that an underlying value in this doctrine is that of the separation of powers. See West Virginia, 597 U.S. 697, 723 (“Thus, in certain extraordinary cases, both separation of powers principles and a practical understanding of legislative intent make us ‘reluctant to read into ambiguous statutory text’ the delegation claimed to be lurking there . . .. The agency instead must point to ‘clear congressional authorization’ for the power it claims.” (quoting Utility Air Regulatory Group v. EPA, 573 U.S. 302, 324 (2014)). See also Louis Capozzi, In Defense of the Major Questions Doctrine, 100 Norte Dame L. R. (forthcoming 2025). The author of this article explores the viewpoint that the Major Questions Doctrine is favorable for the separation of powers in the pages 42 to 52 of the draft available on SSRN. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4741118.
