Panorama of United States Supreme Court Building at Dusk by Joe Ravi is licensed under CC-BY-SA 3.0.
Last week, a federal judge issued a preliminary injunction against a nationwide ban on non-compete agreements, stalling a controversial ruling handed down by the Federal Trade Commission (FTC) earlier this year. While the ruling is noticeably tapered – only the immediate plaintiffs are exempt from the ban until the federal judge issues a final ruling in August – it nevertheless represents an important step towards curbing executive agency power in the post-Chevron era.
With agency bureaucrats now on their heels, the Supreme Court’s elimination of the Chevron Doctrine will allow judicial experts to determine the true intent of the law, rather than the unelected henchmen of the Biden administration.
In April, the FTC voted 3-2 along ideological lines to ban non-compete agreements nationwide, extinguishing a critical safeguard for the competitiveness of American small businesses. While the FTC has patted itself on the back for “protecting the fundamental freedom of workers”, research suggests that a non-compete ban shares a direct correlation with lower levels of investment in employee training, research and development and starting wage premiums. Without this crucial deterrent, larger firms are now free to harvest valuable trade secrets and untapped talent pools through employee poaching campaigns.
Luckily, a recent Supreme Court ruling on the Chevron Doctrine has fundamentally reshaped the ability of the FTC to dictate on such issues. Established in 1984, this precedent required courts to defer to the statutory interpretations of executive agencies, regardless of their own legal rationale. Prior to the Supreme Court’s recent intervention, this allowed the FTC to weaponize vague legislation to enlarge its own authority, resulting in controversial rulings such as a national non-compete ban. Fortunately, the Supreme Court has voted 6-3 to return this interpretive authority to the judiciary, with Chief Justice John Roberts instructing federal judges to “exercise their independent judgment in deciding whether an agency has acted within its statutory authority.”
Last week, U.S. District Court Judge Ada Brown gladly followed this directive, ruling that “the FTC lacks substantive rulemaking authority with respect to unfair methods of competition.” While temporary, Judge Brown insisted that the plaintiffs were “likely to succeed on the merits” of their case, suggesting a permanent block against the FTC’s non-compete ruling in August.
With newfound interpretive authority, Judge Brown’s injunction represents a watershed moment for the dilution of executive agency power in the post-Chevron era. Although narrow for the time being, this ruling is the opening shot in the war against the newly vulnerable administrative state.
Through the elimination of the Chevron doctrine, American taxpayers will no longer have to suffer under endless FTC overreach. By preserving non-compete agreements, countless small businesses are protected from trade secret peddling and employee poaching programs. Furthermore, workers and consumers will continue to benefit from elevated levels of investment in employee training, research and development and starting wage premiums.
As Forbes explains, non-compete clauses are one of the few “effective ways companies can protect their intellectual property, knowhow, and trade secrets in the Information Age.” For many service-based businesses, the protection of this sensitive information from competitors is a key component of their profitability. While larger companies can afford to poach the employees of competitors, this trend of permissive job-hopping will enable “open season on small, knowledge-based businesses” that cannot afford to offer inflated salaries. As the Mercatus Center highlights, the absence of non-compete agreements has created a trifecta of consequences, such as “(a) fewer investments in human capital, (b) a reduction in riskier research and development investments that are necessary for breakthrough innovations, and (c) a decrease in the quantity of new innovations.”
Conversely, researchers at the Smith School of Business have found that non-compete signers remain with their employers for three months longer and enjoy a seven percent wage premium. Furthermore, Competition Policy International has highlighted a positive correlation between the use of non-compete agreements and firms that “undertake riskier R&D investments.” In a labor market already dominated by runaway inflation and endless supply chain crises, non-competes have become a cornerstone of small business success.
The Supreme Court’s rebuke of the Chevron Doctrine has severely weakened the power of runaway executive agencies. As the post-Chevron era begins, courts have already begun to block administrative overreach wherever it may arise, safeguarding the fundamental freedoms of American businesses, workers and consumers. This dilution of federal agency power will bring renewed accountability to executive authority, ensuring that unelected officials can no longer circumvent the authority of Congress to legislate from the shadows.
