New Supreme Court Decision Could Spell Trouble for the FTC's Non-Compete Ban

On June 27, the U.S. Supreme Court released a decision throwing out the so-called Chevron deference doctrine…and that could mean big trouble for the Federal Trade Commission's recent administrative rule aimed at eviscerating workplace non-compete agreements. For the past 40 years, federal courts have been required to grant deference to administrative rulemaking, creating a major hurdle to legal challenges. That just changed.

The FTC's non-compete ban, scheduled to take effect on September 4, is being challenged in court as an overreach of administrative power. As explained below by my partner Peter Spanos, the court battle just got much more interesting:

"Since the Supreme Court has overruled the Chevron deference doctrine, the FTC now cannot argue that its regulation of non-compete clauses must be upheld because the FTC has the rulemaking authority under a ‘reasonable’ interpretation of Section 5 of the FTC Act. 

Section 5 authorizes the FTC to prosecute ‘unfair methods of competition’ but does not expressly authorize the FTC to determine what is ‘unfair competition.’  Accordingly, the FTC’s power under Section 5 must be interpreted from a somewhat ambiguous statute. Under Chevron deference, given the ambiguity, the federal courts would have been required to first decide that the FTC’s interpretation of its authority was ‘unreasonable’ in order to strike it down. Without the Chevron doctrine, however, federal courts may overturn agency actions if the federal court determines that the actions are not expressly authorized by statute. This gives the federal courts more ability to question agency actions and agency interpretations of statutes.

One of the basic arguments against the FTC regulation of non-competes is that this type of rule making is not expressly authorized by Section 5 of the FTC Act.

Even before the Supreme Court decision issued today, many legal authorities argued that the non-compete regulation was an unreasonable exercise of agency authority under the Chevron doctrine.  Now the burden to overturn the regulation is less."