Lina Khan’s Noncompete Ban Goes Down in Court

The FTC Chair racks up another defeat, as a federal judge says her sweeping regulation violates the law

WSJ editorial. 

"Lina Khan struck out again in court on Tuesday when a federal judge tossed the Federal Trade Commission’s sweeping ban on employee noncompete agreements. Maybe one of these days the FTC Chair will show respect for legal boundaries.

Judge Ada Brown scored the FTC for overstepping its authority by issuing a 570-page rule this spring that prohibits most noncompete agreements nationwide. Such employment covenants restrict workers from joining competitors or starting their own firms for a specified duration after leaving. They are intended to protect a firm’s trade secrets and investment in workers.

The FTC says such agreements violate the Federal Trade Commission Act’s prohibition against “unfair methods of competition.” But as Judge Brown explains, this provision lets the agency bring enforcement actions in its own tribunals. It doesn’t grant the FTC authority to issue substantive rules that prohibit specific business practices.

Violations are “typically decided through case-by-case administrative adjudication,” Judge Brown writes. So the FTC could bring complaints against firms that use non-compete agreements based on the argument that they violate the law. But doing so would require more agency resources, and decisions in cases wouldn’t bind non-parties. In other words, Ms. Khan rewrote the law to impose her policy views on thousands of American businesses. Ryan LLC, the tax consultancy, sued and was represented by former Labor Secretary Eugene Scalia.

The FTC argued that Congress’s failure to forbid rule-makings against alleged “unfair methods of competition” confers tacit permission. Judge Brown shot down this reasoning: “The role of an administrative agency is to do as told by Congress, not to do what the agency thinks it should do.”

Several states have restricted noncompete agreements, especially for lower-wage workers. But the FTC ban sweeps more broadly than state laws, and Judge Brown says the agency failed to explain why it didn’t target “specific, harmful non-competes” or consider narrower alternatives.

The 35-year-old Ms. Khan is a hero to progressives, in part because she is willing to ignore the law to do their policy bidding. Some Democratic donors in Silicon Valley want Kamala Harris to replace Ms. Khan if she wins election, but the real reason to oust her is that she has repeatedly shown contempt for the law."