Earlier this year, three members of the Federal Trade Commission (FTC), over the vigorous dissent of their two colleagues, banned almost all noncompete agreements in the United States, deeming them an unfair method of competition. They also claimed the power to overrule contrary laws of more than 30 states regulating such agreements. The consequences of noncompetes on businesses, workers, and competition are complex and may, in some circumstances, warrant antitrust scrutiny. They affect low-wage workers differently from highly paid executives, however, and impact investment in worker training. Not surprisingly, different state legislatures have struck their own individual balances of interests in their laws regulating noncompetes. Congress has not taken a position, having considered but not passed legislation to prohibit noncompetes under federal labor law. Neither has it given the FTC explicit authority to do so. Courts assessing the competitive effect of noncompete agreements under the antitrust laws have declined to prohibit them outright and rebuffed a previous FTC enforcement effort to impose automatic antitrust liability for their use.

Putting aside the pros and cons of noncompetes, the central question for the rule of law is how three unelected FTC commissioners, without clear direction from Congress, can effectively legislate labor law for the entire U.S., affecting tens of millions of people and almost $500 billion in commerce while undoing the laws of dozens of states in the process. This question is not limited to labor issues. Having claimed such broad powers, what other national mandates might three people impose on their fellow citizens, based on vague language or congressional silence? What other state laws might they choose to sweep away? And how would this comport with our representative democracy, where, as repeatedly recognized by the Supreme Court, such major decisions are supposed to be the responsibility of those chosen by the people?

First, some background. In Section 5 of the FTC Act, Congress gave the commission authority to bring enforcement actions to prevent “unfair methods of competition” and, in Section 6, Congress detailed the FTC’s investigative powers to collect confidential business information and conduct industry studies. Historically, the FTC has used these powers to good effect as an enforcer, bringing individual cases to stop anticompetitive mergers and conduct primarily on a bipartisan basis, consistent with the courts’ interpretation of other antitrust laws. The agency created a winning record affecting many industries, including pharmaceutical and hospital competition, and racked up numerous Supreme Court victories. The commission also strategically deployed its authority to collect business information and conduct industry studies, helping guide Congress and the courts, including the Supreme Court, in their actions protecting competition in a variety of fields.

Despite these successes, the current FTC leadership has dismissed the commission’s court and policy record as weak and ineffective. In a 2022 speech, FTC chairwoman Lina Khan called for a “broad and sweeping reassessment” of U.S. competition law because of previous “government inaction” based on a “misguided philosophy.” The current majority seeks to push the boundaries of the agency’s powers, using untested and aggressive interpretations of the FTC’s competition authority. This has led to a recent string of high-profile court losses as the agency has pursued novel theories of liability, often paired with highly speculative factual assertions, beyond the scope of current antitrust court precedent. This is not to say the commission has not had some successes in antitrust enforcement during the current administration. It has continued to win cases brought on a bipartisan basis when its theories of liability are consistent with existing antitrust precedent and the facts.

Determined to get around precedent constraining its stated desire to bring sweeping change to antitrust law, the current FTC majority has argued that it has expansive authority to define unfair methods of competition, unbounded by prior antitrust case law. Tellingly, this push to expand the FTC’s unfair methods of competition authority comes after Congress declined to adopt proposed dramatic changes to antitrust law in 2021 and 2022. Among various proposals, these changes would have given the FTC the authority to prohibit outright certain common business practices and outlaw mergers undertaken by large companies, all without showing they were likely to harm competition. As a companion to this effort to interpret into existence what Congress failed to grant explicitly, the FTC leadership also claims the ability to issue legislative-like rules implementing this broad interpretation of its competition authority, relying on a novel interpretation of a small provision of Section 6 of the FTC Act.

This new approach poses serious problems from a rule-of-law perspective.

First, the FTC is a profoundly unrepresentative agency. Its leadership is unelected. Its five commissioners are nominated by the president for seven-year terms that, barring resignations, extend into the next administration. Once confirmed by the Senate, they are largely insulated from political oversight, more so than the heads of cabinet-level agencies: The president cannot remove FTC commissioners for overstepping their authority or for policy reasons, but only for inefficiency, neglect of duty, or malfeasance. Further, under the FTC’s quorum rule, as few as two unelected commissioners can now promulgate rules with the force of law.

The FTC is typically run by elite lawyers drawn from law firms, academia, and government, frequently in and around D.C. The current group of commissioners are all well-educated lawyers in their mid 30s to mid 40s, and four of the five were Hill staffers. In age and range of experience, they are similar to a typical assistant U.S. attorney or state solicitor general. This is not to impugn the current or any recent commissioners, who are uniformly intelligent and upstanding. Their backgrounds are entirely appropriate if the commission sticks to its traditional case-by-case enforcement of the antitrust laws and its provision of well-researched competition-policy advice to legislative bodies and courts.

But the current FTC leadership claims a broad legislative power over all commercial conduct in the U.S., based on whatever two or three commissioners deem to be “unfair,” with no guidance from Congress in the FTC Act as to what that means. Although taking on a legislative mantle, they are notably not representative of the broader populace in the way Congress is, whose members, on average, 20 years older, from all over the U.S., and with experience in many professions beyond law, such as business, education, and health care. And while Congress can preempt state statutes in certain areas of the law, this is done through the assent of elected representatives from the states.

Second, the FTC is taking a historically expansive view of its authority precisely at a time when the Supreme Court is mandating narrow readings of Congress’s grants of authority to it and sharply curtailing judicial deference for all executive-branch agencies to interpret the scope of their authority. In 2021, in AMG Capital Management, LLC, the Supreme Court ruled unanimously that the FTC could not obtain monetary relief because such power was not specifically authorized by Congress. In 2023, another unanimous Supreme Court emphasized the courts’ primacy over FTC interpretations of constitutional separation-of-powers issues in Axon Enterprise, Inc. And in June 2024, the Supreme Court ruled in Loper Bright Enterprises v. Raimondo that courts must exercise their independent judgment in deciding whether an agency’s action is within its statutory authority and not defer to agency interpretations where the statute is silent or ambiguous.

Given the limitations on FTC authority and the Court’s efforts to curb agencies’ expansive interpretations of vague statutes, it is not surprising that the FTC’s first attempt to make substantive competition law through rulemaking in the noncompete ban has already encountered a major setback. Recently, a federal court in Texas blocked the application of the FTC’s noncompete rule to the parties in the case. The court ruled that the commission lacks the legal authority to make substantive legal rules regarding unfair methods of competition under that obscure provision in Section 6 of the FTC Act. It also held that the noncompete rule itself is arbitrary and capricious because it imposes the one-size-fits-all approach of categorically banning worker noncompetes and because the FTC lacked evidence to justify this sweeping prohibition as an alternative to actions targeting specific, harmful noncompetes. Although the ban on enforcing the rule extends only to the plaintiffs in the lawsuit for now, if the court ultimately decides that the rule is unlawful, it could issue an order voiding the rule and preventing its application nationwide.

The FTC’s effort to impose broad business regulation through a legislative rule adopted by a small set of lawyers without clear authority from Congress, paired with recent Supreme Court decisions striking down agency actions that lack clear congressional authorization, has set the stage for a clash between the rule of lawyers and the rule of law. To judge by the initial court reaction to the FTC’s noncompete ban, it appears so far that the rule of law will prevail over a legislative competition rule imposed by three FTC commissioners. Only time, and likely the Supreme Court, will reveal the ultimate winner, however, as the FTC has announced that it remains confident in the legality of its rule and will pursue the noncompete ban through ongoing litigation.