Lina Khan Loses in Court Again—This Time on Non-Competes

A federal judge says the FTC’s ban on the employment agreements has no basis in law

WSJ editorial. 

"Regulators no doubt will mourn the Supreme Court’s burial last week of its Chevron doctrine. But courts won’t, as a federal judge showed in a decision Wednesday blocking the Federal Trade Commission’s sweeping ban on non-compete agreements.

The FTC this spring issued a 570-page rule prohibiting most employment agreements that restrict workers from joining competitors or starting their own firms for a specified duration after leaving. The agency says such contracts constitute an “unfair method of competition,” which are forbidden under the Federal Trade Commission Act. Not so fast.

As Judge Ada Brown explains, a “plain reading” of the law “does not expressly grant the Commission authority to promulgate substantive rules regarding unfair methods of competition.” The law instead lets the FTC hold administrative hearings and issue cease-and-desist orders against businesses charged with unfair methods of competition.

The FTC pointed to an ostensibly vague provision that authorizes it to “make rules and regulations for the purpose” of carrying out the prohibition on unfair methods of competition. Chair Lina Khan argued this provision empowered the FTC to regulate business practices as long as Congress doesn’t expressly say it can’t. Judge Brown disagreed.

She notes the cited provision resembles “a ‘housekeeping statute,’ authorizing what the [Administrative Procedure Act] terms ‘rules of agency organization procedure or practice’ as opposed to ‘substantive rules.’” Based on the text, structure and history of the law, she concludes that “the FTC lacks the authority to create substantive rules through this method.”

The Chevron doctrine required judges to defer almost mechanistically to regulators’ interpretation of ambiguous laws as long as they were seemingly reasonable. Citing the Supreme Court’s Loper Bright Enterprises ruling last week, Judge Brown writes that “the deference that Chevron requires of courts reviewing agency action cannot be squared with the APA.” Nor the Constitution. 

Judge Brown’s ruling is another defeat for Ms. Khan and a victory for Americans against the power-hungry administrative state, which can no longer rely on Chevron to protect its imperial overreaches."