As earlier reported on this blog, Commissioner Christine Wilson, the sole dissenter in the Federal Trade Commission's proposed rule banning non-competes, announced yesterday that she is resigning from the agency over her fierce opposition to progressive FTC Chair Lina Khan's methods of advancing her agenda. In a Wall Street Journal OpEd, Commissioner Wilson took aim at Ms. Khan's "disregard for the rule of law and due process." She cited several examples of this alleged disregard for the rule of law and due process, including the FTC's launch of the rulemaking process to ban nearly all non-compete clauses in employee contracts, affecting roughly one-fifth of employment contracts in the US. As Commissioner Wilson noted in her vigorous dissenting statement to the FTC's Notice of Proposed Rulemaking ("NPR"), the proposed rule defies the Supreme Court's decision in West Virginia v. EPA (2022), which held that an agency can't claim "to discover in a long-extant statute an unheralded power representing a transformative expansion in its regulatory authority." As Commission Wilson noted in her dissent, and as we have pointed out here and here, the FTC's NPR purports to undo hundreds of years of state legal precedent—dating from even before the American Revolution—that employs a fact-specific inquiry into whether a non-compete clause is unreasonable in duration and scope, given the business justification for the restriction.
Wilson closed her OpEd with the following "We all know the simple rule: If you see something, say something. Consider this my noisy exit."
Wilson's announcement of her resignation came the same day that the House Judiciary Committee penned a letter to Khan and her fellow commissioners accusing the FTC of engaging in a "power grab" through its proposed non-compete rules.
It's unclear at this juncture what impact Wilson's departure will have on the FTC rulemaking process with respect to banning non-competes. The comment period on the rulemaking is currently scheduled to end on March 20, but business organizations have requested a 60-day extension. That extension has not been granted yet, but perhaps Wilson's departure will influence the Commission to grant the extension. Wilson's departure will leave the FTC without a Republican appointee. Although it has been reported that there is an effort underway to nominate a new Republican to sit on the Commission soon, no timetable has been set. With her very public resignation, and the reasons for it, Commissioner Wilson certainly brings heightened attention to the very real question as to whether the FTC has the authority to go down the path it is heading.
What is clear is that policy debates about non-compete clauses have now become a highly-charged political issue at the federal level that is not likely to go away any time soon. Although federal agency commissioners occasionally resign before their terms expire, Commissioner Wilson's "noisy exit" is unusual, and perhaps unprecedented. Ms. Wilson's blunt criticism of the FTC suggests that, at least in her view, the FTC is not likely to change course, irrespective of her efforts within the agency. And regardless of what form the FTC's final rule takes, and regardless of whether the final rules survive inevitable judicial scrutiny, it's prudent to assume that efforts to regulate non-competes at the federal level will continue—if not through the FTC, then through Congressional legislation.
We will continue to monitor developments on this increasingly contentious issue. In the meantime, employers should take a careful look at their existing restrictive covenant agreements to ensure that they are compliant with existing state law and be prepared to adjust should potentially significant changes in the law occur at the federal or state level.
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