COALITION COMMENT

OPPOSING PROPOSED PROHIBITION OF NONCOMPETE AGREEMENTS IN EMPLOYMENT

Re: Non-Compete Clause Rulemaking, Matter No. P201200, Document ID FTC-2023-0007-0001

March 7, 2023

On behalf of the undersigned organizations and the millions of members, supporters and
taxpayers across America whom we collectively represent, we write to express our strongest
opposition to the Federal Trade Commission’s (FTC) proposed regulation imposing a sudden,
nationwide, blanket prohibition on voluntary employer-employee noncompete agreements.

As an initial and consequential matter, the FTC’s proposal constitutes an unconstitutional

executive branch overreach unlikely to withstand judicial scrutiny.

Just last year in West Virginia v. EPA, the United States Supreme Court by a 6-3 majority
overturned an Environmental Protection Agency (EPA) regulation attempting a similarly
wholesale remaking of our nation’s power grid via “green energy” mandates and subsidies. In
the words of Justice Neil Gorsuch, “The Constitution does not authorize agencies to use pen-
and-phone regulations as substitutes for laws passed by the people’s representatives.” This
ruling continued a growing line of decisions rejecting administrative agency claims of authority
over issues of “vast economic and political significance” where Congress has not clearly
empowered them with that claimed authority.

Ignoring that Supreme Court guidance, the FTC now seeks to completely prohibit voluntary
noncompete agreements, which the FTC itself acknowledges will affect an astounding 30
million workers. By any reasonable measure, that qualifies as an issue of “vast economic and
political significance” as defined by the Supreme Court. Not only would the proposed rule
supersede the laws of all 50 states that currently govern employment relationships, it would
undermine employers’ rightful ability to protect intellectual property – patents, copyrights,
trademarks and trade secrets – which largely account for America’s competitive advantage over
the rest of the world in an increasingly competitive globalized economy.

It's also important to note the value of noncompete agreements themselves in our increasingly
information-based global economy.

Noncompete agreements are simply mutual agreements between employers and employees at
the beginning of the employment relationship governing the degree to which the employee can
compete directly or indirectly with the employer at the end of that relationship. For example,
the agreement can stipulate that for a limited time and a limited geographical area, the
departing employee won’t join a direct competitor, start up a competing company offering the
same products or services, develop competing products or services or recruit colleagues to
leave the employer to join them at a new competitor business.

Accordingly, noncompete agreements can serve important functions for businesses and
protection of critical intellectual property, rather than simply restricting employee freedom
without any legitimate business interest of employers. Noncompete agreements exist to
protect such things as trade secrets, confidential information, client or customer relationships
or specialized training.

Moreover, it's important to emphasize that courts at the federal level and across all 50 states
already scrutinize noncompete agreements closely, and refuse to enforce them when their
provisions are unfair. For instance, courts won’t enforce provisions that don’t center on the
employer’s legitimately sensitive business interests, that aren’t reasonable restricted in
duration, that extend beyond a reasonable geographic location or are otherwise unfair to the
employee.

Regardless of one’s opinion on the merits of noncompete agreements generally, the FTC’s
proposed wholesale nationwide blanket ban on private noncompete agreements thus exceeds
its authority, threatens our economy and undermines important intellectual property
protections. The FTC was created with the limited purpose of policing “unfair methods of
competition,” and its enforcement is limited to such unfair practices. The fact that all 50 states
choose to regulate noncompete agreements differently shows that they’re not inherently
“unfair methods of competition.”

On behalf of millions of supporters across the nation, we therefore urge the FTC to reconsider
this unconstitutional and unwise proposal prior to inevitable judicial challenge and needless
expense and waste of resources. Thank you for your attention to this critical matter.

Sincerely,

Jeffrey Mazzella
President
Center for Individual Freedom

Phil Kerpen
President
American Commitment

Steve Pociask
President/CEO
American Consumer Institute

Grover Norquist
President
Americans for Tax Reform

Tom Schatz
President
Citizens Against Government Waste

Iain Murray
Senior Fellow
Competitive Enterprise Institute
Jessica Melugin
Director of the Center for Technology and Innovation
Competitive Enterprise Institute

Matthew Kandrach
President
Consumer Action for a Strong Economy

Seton Motley
President
Less Government

Pete Sepp
President
National Taxpayers Union

Tom Hebert
Executive Director
Open Competition Center

Karen Kerrigan
President & CEO
Small Business & Entrepreneurship Council

David Williams
President
Taxpayers Protection Alliance