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FEDERAL TRADE COMMISSION

16 CFR Part 910

RIN 3084-AB74

Non-Compete Clause Rule

AGENCY: Federal Trade Commission.

ACTION: Final rule.

SUMMARY: Pursuant to sections 5 and 6(g) of the Federal Trade Commission Act (“FTC

Act”), the Federal Trade Commission (“Commission”) is issuing the Non-Compete Clause Rule

(“the final rule”). The final rule provides that it is an unfair method of competition—and

therefore a violation of section 5—for persons to, among other things, enter into non-compete

clauses (“non-competes”) with workers on or after the final rule’s effective date. With respect to

existing non-competes—i.e., non-competes entered into before the effective date—the final rule

adopts a different approach for senior executives than for other workers. For senior executives,

existing non-competes can remain in force, while existing non-competes with other workers are

not enforceable after the effective date.

DATES: The final rule is effective [INSERT DATE 120 DAYS AFTER DATE OF

PUBLICATION IN THE FEDERAL REGISTER].

FOR FURTHER INFORMATION CONTACT: Benjamin Cady or Karuna Patel, Office of

Policy Planning, 202-326-2939 (Cady), 202-326-2510 (Patel), Federal Trade Commission, 600

Pennsylvania Avenue, NW, Mail Stop CC-6316, Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

I. Background

A. Summary of the Final Rule’s Provisions

The Commission proposed the Non-Compete Clause Rule on January 19, 2023 pursuant

to sections 5 and 6(g) of the FTC Act. 1 Based on the Commission’s expertise and after careful

review and consideration of the entire rulemaking record—including empirical research on how

non-competes affect competition and over 26,000 public comments—the Commission adopts

this final rule addressing non-competes.

The final rule provides that it is an unfair method of competition—and therefore a

violation of section 5—for employers to, inter alia, enter into non-compete clauses with workers

on or after the final rule’s effective date.2 The Commission thus adopts a comprehensive ban on

new non-competes with all workers.

With respect to existing non-competes, i.e., non-competes entered into before the final

rule’s effective date, the Commission adopts a different approach for senior executives 3 than for

other workers. Existing non-competes with senior executives can remain in force; the final rule

does not cover such agreements.4 The final rule allows existing non-competes with senior

executives to remain in force because this subset of workers is less likely to be subject to the

kind of acute, ongoing harms currently being suffered by other workers subject to existing noncompetes and because commenters raised credible concerns about the practical impacts of

extinguishing existing non-competes for senior executives. For workers who are not senior

executives, existing non-competes are no longer enforceable after the final rule’s effective date. 5

Employers must provide such workers with existing non-competes notice that they are no longer

Non-Compete Clause Rule, NPRM, 88 FR 3482 (Jan. 19, 2023) (hereinafter “NPRM”).

§ 910.2(a)(1)(i) and § 910.2(a)(2)(i).

See § 910.1 (defining “senior executive”).

See Part IV.C.3.

§ 910.2(a)(1)(ii).

enforceable.6 To facilitate compliance and minimize burden, the final rule includes model

language that satisfies this notice requirement. 7

The final rule contains separate provisions defining unfair methods of competition for the

two subcategories of workers. Specifically, the final rule provides that, with respect to a worker

other than a senior executive, it is an unfair method of competition for a person to enter into or

attempt to enter into a non-compete clause; to enforce or attempt to enforce a non-compete

clause; or to represent that the worker is subject to a non-compete clause. 8 The Commission

describes the basis for its finding that these practices are unfair methods of competition in Parts

IV.B.1 through IV.B.3.

The final rule provides that, with respect to a senior executive, it is an unfair method of

competition for a person to enter into or attempt to enter into a non-compete clause; to enforce or

attempt to enforce a non-compete clause entered into after the effective date; or to represent that

the senior executive is subject to a non-compete clause, where the non-compete clause was

entered into after the effective date.9 The Commission describes the basis for its finding that

these practices are unfair methods of competition in Part IV.C.2.

The final rule defines “non-compete clause” as “a term or condition of employment that

prohibits a worker from, penalizes a worker for, or functions to prevent a worker from

(1) seeking or accepting work in the United States with a different person where such work

would begin after the conclusion of the employment that includes the term or condition; or

(2) operating a business in the United States after the conclusion of the employment that includes

§ 910.2(b)(1).

§ 910.2(b)(4).

§ 910.2(a)(1).

§ 910.2(a)(2).

the term or condition.”10 The final rule further provides that, for purposes of the final rule, “term

or condition of employment” includes, but is not limited to, a contractual term or workplace

policy, whether written or oral.11 The final rule further defines “employment” as “work for a

person.”12

The final rule defines “worker” as “a natural person who works or who previously

worked, whether paid or unpaid, without regard to the worker’s title or the worker’s status under

any other State or Federal laws, including, but not limited to, whether the worker is an employee,

independent contractor, extern, intern, volunteer, apprentice, or a sole proprietor who provides a

service to a person.”13 The definition further states that the term “worker” includes a natural

person who works for a franchisee or franchisor, but does not include a franchisee in the context

of a franchisee-franchisor relationship.14

The final rule does not apply to non-competes entered into by a person pursuant to a bona

fide sale of a business entity.15 In addition, the final rule does not apply where a cause of action

related to a non-compete accrued prior to the effective date. 16 The final rule further provides that

it is not an unfair method of competition to enforce or attempt to enforce a non-compete or to

make representations about a non-compete where a person has a good-faith basis to believe that

the final rule is inapplicable.17

The final rule does not limit or affect enforcement of State laws that restrict noncompetes where the State laws do not conflict with the final rule, but it preempts State laws that

§ 910.1.

Id.

§ 910.3(a).

§ 910.3(b).

§ 910.3(c); see also Part V.C.

conflict with the final rule.18 Furthermore, the final rule includes a severability clause clarifying

the Commission’s intent that, if a reviewing court were to hold any part of any provision or

application of the final rule invalid or unenforceable—including, for example, an aspect of the

terms or conditions defined as non-competes, one or more of the particular restrictions on noncompetes, or the standards for or application to one or more category of workers—the remainder

of the final rule shall remain in effect.19 The final rule has an effective date of [INSERT DATE

120 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].20

B. Context for the Rulemaking

1. Growing Concerns Regarding the Harmful Effects of Non-Competes

The purpose of this rulemaking is to address conduct that harms fair competition.

Concern about non-competes dates back centuries, and the evidence of harms has increased

substantially in recent years. However, the existing case-by-case and State-by-State approaches

to non-competes have proven insufficient to address the tendency of non-competes to harm

competitive conditions in labor, product, and service markets.

The ability of employers21 to enforce non-competes has always been restricted, based on

public policy concerns that courts have recognized for centuries. For example, in Mitchel v.

Reynolds (1711), an English case that provided the foundation for American common law on

non-competes,22 the court noted that workers were vulnerable to exploitation through noncompetes and that non-competes threatened a worker’s ability to practice a trade and earn a

§ 910.4.

§ 910.5.

§ 910.6.

For ease of reference, the Commission uses the term “employer” in this Supplementary Information to refer to a

person for whom a worker works. The text of part 910 does not use the term “employer.”

Harlan Blake, Employee Agreements Not to Compete, 73 Harv. L. Rev. 625, 629-31 (1960).

living.23 These concerns have persisted. Today, non-competes between employers and workers

are generally subject to greater scrutiny under State common law than other employment terms

“because they are often the product of unequal bargaining power and because the employee is

likely to give scant attention to the hardship he may later suffer through loss of his livelihood.” 24

For these reasons, State courts often characterize non-competes as “disfavored.” 25

Furthermore, as “contract[s] . . . in restraint of trade,” 26 non-competes have always been

subject to our nation’s antitrust laws.27 As early as 1911, in the formative antitrust case of United

States v. American Tobacco Co., the Supreme Court held that several tobacco companies

violated both section 1 and section 2 of the Sherman Act because of the “constantly recurring”

use of non-competes, among other practices. 28

Concerns about non-competes have increased substantially in recent years in light of

empirical research showing that they tend to harm competitive conditions in labor, product, and

service markets. Changes in State laws governing non-competes 29 in recent decades have

allowed researchers to better isolate the effects of non-competes, giving rise to a body of

empirical research documenting these harms. This research has shown that the use of non23

The Mitchel court expressed concern that non-competes threaten “the loss of [the worker’s] livelihood, and the

subsistence of his family.” Mitchel v. Reynolds, 1 P. Wms. 181, 190 (Q.B. 1711). The court likewise emphasized

“the great abuses these voluntary restraints” are subject to—for example, “from masters, who are apt to give their

apprentices much vexation” by using “many indirect practices to procure such bonds from them, lest they should

prejudice them in their custom, when they come to set up for themselves.” Id.

Restatement (Second) of Contracts sec. 188, cmt. g (1981).

See, e.g., Navarre Chevrolet, Inc. v. Begnaud, 205 So. 3d 973, 975 (La. Ct. App. 3d 2016); Eastman Kodak Co. v.

Carmosino, 77 A.D.3d 1434, 1435 (N.Y. App. Div. 4th 2010); Access Organics, Inc. v. Hernandez, 175 P.3d 899,

904 (Mont. 2008); Bybee v. Isaac, 178 P.3d 616, 621 (Idaho 2008); Softchoice, Inc. v. Schmidt, 763 N.W.2d 660,

666 (Minn. Ct. App. 2009).

15 U.S.C. 1.

See, e.g., Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1082 (2d Cir. 1977) (“Although such issues have

not often been raised in the federal courts, employee agreements not to compete are proper subjects for scrutiny

under section 1 of the Sherman Act. When a company interferes with free competition for one of its former

employee’s services, the market’s ability to achieve the most economically efficient allocation of labor is impaired.

Moreover, employee-noncompetition clauses can tie up industry expertise and experience and thereby forestall new

entry.”) (internal citation omitted).

221 U.S. 106, 181-83 (1911).

See NPRM at 3494 (describing recent legislative activity at the State level).

competes by employers tends to negatively affect competition in labor markets, suppressing

earnings for workers across the labor force—including even workers not subject to noncompetes.30 This research has also shown that non-competes tend to negatively affect

competition in product and service markets, suppressing new business formation and

innovation.31

Alongside this large body of empirical work, news reports revealed that employers

subject even middle-income and low-wage workers to non-competes on a widespread basis. 32

Workers came forward to recount how—by blocking them from taking a better job or starting

their own business, and subjecting them to threats and litigation from their employers—noncompetes derailed their careers, destroyed their finances, and upended their lives. 33

Yet despite the mounting empirical and qualitative evidence confirming these harms and

the efforts of many States to ban them, non-competes remain prevalent in the U.S. economy.

Based on the available evidence, the Commission estimates that approximately one in five

American workers—or approximately 30 million workers—is subject to a non-compete. 34 The

evidence also indicates that employers frequently use non-competes even when they are

unenforceable under State law.35 This suggests that employers may believe workers are unaware

of their legal rights; that employers may be seeking to take advantage of workers’ lack of

See Parts IV.B.3.a and IV.C.2.c.ii.

See Parts IV.B.3.b and IV.C.2.c.i.

See, e.g., Dave Jamieson, Jimmy John’s Makes Low-Wage Workers Sign ‘Oppressive’ Noncompete Agreements,

HuffPost, Oct. 13, 2014, https://www.huffpost.com/entry/jimmy-johns-non-compete_n_5978180; Spencer

Woodman, Exclusive: Amazon Makes Even Temporary Warehouse Workers Sign 18-Month Non-Competes, The

Verge, Mar. 26, 2015, https://www.theverge.com/2015/3/26/8280309/amazon-warehouse-jobs-exclusivenoncompete-contracts.

See, e.g., Conor Dougherty, How Noncompete Clauses Keep Workers Locked In, N.Y. Times, May 13, 2017,

https://www.nytimes.com/2017/05/13/business/noncompete-clauses.html; Lauren Weber, The Noncompete Clause

Gets a Closer Look, Wall St. J., Jul. 21, 2021, https://www.wsj.com/articles/the-noncompete-clause-gets-a-closerlook-11626872430.

See Part I.B.2. As described therein, this is likely a conservative estimate.

See Part IV.B.2.b.i.

knowledge of their legal rights; or that workers are unable to enforce their rights through caseby-case litigation.36 In addition, the ability of States to regulate non-competes effectively is

constrained by employers’ use of choice-of-law provisions, significant variation in how courts

apply choice-of-law rules in disputes over non-competes, and the increasingly interstate nature of

work. As the public comments attest, this patchwork of laws and legal uncertainty has become

extremely burdensome for both employers and workers. 37

As concern about the harmful effects of non-competes increased, the Commission began

exploring the potential for Federal rulemaking on non-competes. In 2018 and 2019, the

Commission held several hearings on twenty-first century competition and consumer protection

issues, including “the use of non-competition agreements and the conditions under which their

use may be inconsistent with the antitrust laws.”38 In January 2020, the Commission held a

public workshop on non-competes. The speakers and panelists who participated in the

workshop—and the hundreds of public comments the Commission received in response to the

workshop—addressed a wide range of issues, including statutory and judicial treatment of noncompetes; the economic literature regarding the effects of non-competes; and whether the

Commission should initiate a Federal rulemaking on non-competes. 39 The Commission also

sought public comment on non-competes as part of an August 2021 solicitation for public

comment on contract terms that may harm competition and a December 2021 public workshop

on competition in labor markets. 40 The Commission has also addressed non-competes in

See id.

See Part IX.C.2.

Hearings on Competition and Consumer Protection in the 21st Century, Notice, 83 FR 38307, 38309 (Aug. 6,

2018).

FTC, Non-Competes in the Workplace: Examining Antitrust and Consumer Protection Issues (Jan. 9, 2020),

https://www.ftc.gov/news-events/events/2020/01/non-competes-workplace-examining-antitrust-consumerprotection-issues.

FTC, Solicitation for Public Comments on Contract Terms that May Harm Competition (Aug 5, 2021),

connection with its merger review work. 41

In 2021, the Commission initiated investigations into the use of non-competes. In 2023,

the Commission secured final consent orders settling charges that certain firms engaged in an

unfair method of competition in violation of section 5 because their use of non-competes tended

to impede rivals’ access to the restricted employees’ labor, harming workers, consumers, and

competitive conditions.42

The Commission also secured a final consent order settling charges that another firm

violated section 5 by using non-competes with its employees. 43 The Commission’s complaint

alleged the firm’s imposition of non-competes took advantage of the unequal bargaining power

between the firm and its employees, including low-wage security guard employees, and thus

reduced workers’ job mobility; limited competition for workers’ services; and ultimately

deprived workers of higher wages and more favorable working conditions. 44

Based on the feedback obtained from years of extensive public outreach and factgathering, in January 2023, the Commission published a notice of proposed rulemaking (NPRM)

concerning non-competes.45 The proposed rule would have categorically banned employers from

https://www.regulations.gov/document/FTC-2021-0036-0022; FTC, Making Competition Work: Promoting

Competition in Labor Markets (Dec. 6-7, 2021), https://www.regulations.gov/docket/FTC-2021-0057/comments.

See NPRM at 3498-99.

FTC, Press Release, FTC Approves Final Orders Requiring Two Glass Container Manufacturers to Drop

Noncompete Restrictions That They Imposed on Workers (Feb. 23, 2023), https://www.ftc.gov/newsevents/news/press-releases/2023/02/ftc-approves-final-orders-requiring-two-glass-container-manufacturers-dropnoncompete-restrictions; FTC, Press Release, FTC Approves Final Order Requiring Anchor Glass Container Corp.

to Drop Noncompete Restrictions That It Imposed on Workers (June 2, 2023), https://www.ftc.gov/newsevents/news/press-releases/2023/06/ftc-approves-final-order-requiring-anchor-glass-container-corp-dropnoncompete-restrictions-it.

FTC, Press Release, FTC Approves Final Order Requiring Michigan-Based Security Companies to Drop

Noncompete Restrictions That They Imposed on Workers (Mar. 8, 2023), https://www.ftc.gov/newsevents/news/press-releases/2023/03/ftc-approves-final-order-requiring-michigan-based-security-companies-dropnoncompete-restrictions.

FTC, Analysis of Agreement Containing Consent Order to Aid Public Comment, In re Prudential Sec., Inc. et al.

at 1 (Jan. 4, 2023).

NPRM, supra note 1.

using non-competes with all workers and required rescission of all existing non-competes. 46

In response to the NPRM, the Commission received over 26,000 public comments. 47 The

comments reflected a diverse cross-section of the U.S. The Commission received comments

from employers and workers in a wide range of industries and from every State; 48 from small,

medium, and large businesses; and from workers with wide-ranging income levels. 49 The

Commission also received comments from representatives of different industries through trade

and professional groups as well as from academics and researchers. Federal, State, and local

governmental representatives also submitted public comments.

Among these comments, over 25,000 expressed support for the Commission’s proposal

to categorically ban non-competes. Among the public commenters were thousands of workers

who described how non-competes prevented them from taking a better job or starting a

competing business, as well as numerous small businesses who struggled to hire talented

workers. Commenters stated that non-competes have suppressed their wages, harmed working

conditions, negatively affected their quality of life, reduced the quality of the product or service

their company provided, prevented their business from growing and thriving, and created a

climate of fear that deters competitive activity. The following examples are illustrative of the

Id. at 3482-83.

The public comments are available online. See Regulations.gov, Non-Compete Clause Rule (NPRM), FTC-20230007, https://www.regulations.gov/docket/FTC-2023-0007/comments. The Commission cannot quantify the number

of individuals or entities represented by the comments. The number of comments undercounts the number of

individuals or entities represented by the comments because many comments, including comments from different

types of organizations, jointly represent the opinions or interests of many.

This reflects information provided by commenters. Commenters self-identify their State and are not required to

include geographic information.

Though most commenters identifying as workers did not provide information regarding their income or

compensation levels, many provided information about their particular jobs or industries from which the

Commission was able to infer a broad range of income levels based on occupational data from the Bureau of Labor

Statistics (“BLS”). BLS wage data for each year can be found at Occupational Employment and Wage

Statistics, Tables Created by BLS, https://www.bls.gov/oes/tables.htm (hereinafter “BLS Occupational Employment

and Wage Statistics”). The Commission used data from the May 2022 National XLS table, generally for private

ownership.

comments the Commission received:50



I currently work in sales for an asphalt company in Michigan. The company had me sign

a two year non-compete agreement to not work for any other asphalt company within 50

miles if I decide to resign. After two years with the company I have been disheartened at

how poorly customers are being treated and how often product quality is sub-par. I would

love to start my own business because I see this as an opportunity to provide a better

service at a lower cost. However, the non-compete agreement stands in the way even

though there are no trade secrets and too many customers in this market. 51



[I] signed a non-compete clause for power-washing out of duress. My boss said that if I

didn’t sign before the end of the week, not to come in the next week. . . . I’d like to start

my own business but I would have to find another job and wait 5 years. All I know is

power-washing and these business owners all want me to sign a non-compete clause. It’s

one big circle of wealthy business owners keeping the little man down. Essentially, noncompete clauses limit an employee’s opportunity to excel in whatever skill or trade

they’re familiar with. In the land of the free, we should be free to start a business not

limited by greedy business owners.52



In October 2020, I started working as a bartender at a company called [REDACTED] for

$10 an hour. On my first day, I unknowingly signed a 2-year non-compete, slipped

between other paperwork while my boss rushed me, and downplayed its importance. . . .

At [REDACTED], I was sexually harassed and emotionally abused. I needed money, so I

searched for a new job while remaining at [REDACTED] for one year. I was eventually

offered a bartending job at a family-owned bar with better wages, conditions, and

opportunities. Upon resigning, I was threatened with a non-compete I didn’t know

existed. Still, I couldn’t take it anymore, so believing it was an unenforceable scare tactic,

I took the new job, thinking our legal system wouldn’t allow a massive company with

over 20 locations to sue a young entry-level worker with no degree. In December 2021, I

was sued for $30,000 in “considerable and irreparable damages” for violating the noncompete. . . . 53



I am a physician in a rural underserved area of Appalachia. . . . “[N]on-compete” clauses

have become ubiquitous in the healthcare industry. With hospital systems merging,

providers with aggressive non compete clauses must abandon the community that they

serve if they chose to leave their employer. . . . Healthcare providers feel trapped in their

current employment situation, leading to significant burnout that can shorten their career

longevity. Many are forced to retire early or take a prolonged pause in their career when

To be clear, the Commission does not rely on any particular individual comment submission for its findings, but

rather provides here (and throughout this final rule) examples of comments that were illustrative of themes that

spanned many comments. The Commission’s findings are based on consideration of the totality of the evidence,

including its review of the empirical literature, its review of the full comment record, and its expertise in identifying

practices that harm competition.

Individual commenter, FTC-2023-0007-2215. Comment excerpts have been cleaned up for grammar, spelling,

and punctuation.

Individual commenter, FTC-2023-0007-12689.

Individual commenter, FTC-2023-0007-8852.

they have no other recourse to combat their employer. 54



I am a practicing physician who signed an employment contract containing a noncompete

agreement in 2012, entering into this agreement with an organization that no longer

exists. My original employer merged with, and was made subsidiary to, a new

organization that is run under religious principles in conflict with my own. . . . I would

have never signed such an agreement with my new employer, yet I am bound to this

organization under threat of legal coercion. To be clear, the forced compromise of my

religious principles does direct harm to me. My only recourse to this coercion is to give

up medical practice anywhere covered by my current medical license, which is injurious

to the patients in my care, and to myself.55



I am the owner of a small-midsize freight brokerage, and non-competes of large

brokerages have time and time again constrained talent from my business. Countless

employees of [a] mega brokerage . . . have left and applied for our company and we must

turn them away. These are skilled brokers that are serving the market and their clients

well due to THEIR skillsets. . . . These non-competes affect not just me but the clients

they work with as these skilled brokers are forced out of the entire logistics market for an

entire year and possibly a lifetime when they pick up a new career in a different field

because of these aggressive non-competes. . . . 56



I was laid off from my company in 2008 due to the economy, not to any fault of my own.

However, when I was offered a job at another company, my former company threatened

them and my offer was rescinded. I was unable to find gainful employment for months,

despite opportunities in my field, and had to utilize unemployment when I otherwise

would not have needed it. To find work, I ultimately had to switch fields, start part time

somewhere, and just continue to work my way up. All of this because I was laid off to no

fault of my own.57



I was terminated by a large hospital organization suddenly with a thriving, full Pediatric

practice. . . . My lawyer and I believe the non-compete does not apply in my

circumstances and that the noncompete is overly broad, restrictive and harmful to the

public (my patients). I started seeing my patients mostly gratuitously in their homes so

they would not go without the care they wanted and needed. . . The judge awarded the

order and I was told I cannot talk to patients on the phone, text patients, zoom visits or

provide any pediatric care within my non-compete area. Patients are angry and panicked.

I’m worried every day about my patients and how I can continue to care for them. . . .

Patients have a right to choose and keep their doctor. The trust built between a patient

and his doctor is crucial to keeping a patient healthy. It’s not a relationship that can or

should be replaced. . . . Patients should always come first and that is not happening. 58

Individual commenter, FTC-2023-0007-0026.

Individual commenter, FTC-2023-0007-9671.

Individual commenter, FTC-2023-0007-6142.

Individual commenter, FTC-2023-0007-15497.

Individual commenter, FTC-2023-0007-14956.



When I first graduated veterinary school I signed a noncompete clause that was for 7

years. I tried to negotiate it to a more reasonable time period but the employer wouldn’t

budge. There weren’t many job openings for new graduates at the time and I had student

loans to pay back so I signed it. . . . I moved back home to a small town and took a job

that required a 10-radial-mile, 2-year noncompete (this is currently considered

“reasonable/standard” in my industry). Unfortunately since it’s a rural area the 10 miles

blocked me out of the locations of all other veterinary clinics in the county and I had to

commute an hour each way to work in the next metropolitan area. This put a lot of stress

on my family since I have young children. Some days I didn’t even get to see them when

they were awake.59



I work for a large electronic health records company . . . that is known for hiring staff

right out of college, myself included. I was impressed with their starting salary and welladvertised benefits, so I was quick to accept their offer. After accepting their offer, I was

surprised to receive a contract outlining a strict non-compete agreement . . . I feel

disappointed that this information was not made apparent to me prior to my acceptance of

the position, and now I feel stuck in a job that I’ve quickly discovered is not a good longterm fit for me. I am certain that many other recent graduates often find themselves in a

similar position – they accept shiny offers from a workplace, not knowing whether the

company and position will be the right fit for them, and find themselves trapped by such

contracts as mine.60



Non competes are awful. I am being sued right now for going into business on my own in

Boston, Massachusetts, by my former employer who says I signed a non-compete in

2003, 20 years ago. . . . I am fighting them in court. Hopefully I will prevail . . . . [The]

corporation I worked for is a billion-dollar corporation. And they just keep trying scare

tactics to make me back down. They went as far as trying to get a preliminary injunction

ordered against me. And the judge refused but I still have to spend $1,000 an hour to

defend myself.61



I have been working in the field of multi-media in the DC/Baltimore region since the

early 2000s. . . . I was 26 when I first became employed, and at that time a requirement

was that I sign a non-compete agreement. . . . This means I can’t be an entrepreneurwhich kills any opportunities for me to grow something of my own- which could

potentially provide jobs for others in the future. So what this non-compete does is

basically enables businesses to be small monopolies. I could literally have a new lease on

my career if non competes were abolished. As of now, when I think of working

someplace else I have to consider changing careers altogether. 62



A former employer had me sign a non-compete when I started employment at an

internship in college. It was a part-time position of 20 hours of work as an electrical

engineer, while I finished university. After university, I worked for this employer another

Individual commenter, FTC-2023-0007-0922.

Individual commenter, FTC-2023-0007-10729.

Individual commenter, FTC-2023-0007-10871.

Individual commenter, FTC-2023-0007-10968.

4 years full time, but then found a better job in another state. It was not a competitor, but

a customer of my former employer. My former employer waited till the day after my 4week notice to tell me that I had signed a non-compete agreement and that it [barred] me

from working for any competitor, customer or any potential customer up to 5 years after

leaving the company with no geographic limitations. This was effectively the entire semiconductor industry and put my entire career at risk.63



Non-competes serve little more purpose than to codify and entrench inefficiencies. I have

seen this firsthand in the context of a sophisticated management consulting environment

where company owners provided ever less support in terms of contributing to projects or

even to sales of new business while still feeling secure through agreements that

substantially limited anyone from working in the relevant industry for two years on a

global basis after leaving. . . . The reality is that there are innumerable retention

mechanisms (such as good working conditions, compensation, culture, management,

growth trajectory and/or strategy) that can contribute to loyal employees without the need

for non-competes.64

The Commission has undertaken careful review of the public comments and the entirety

of the rulemaking record. Based on this record and the Commission’s experience and expertise in

competition matters, the Commission issues this final rule pursuant to its authority under sections

5 and 6(g) of the FTC Act.

2. Prevalence of Non-Competes

Based on its own data analysis, studies published by economists, and the comment

record, the Commission finds that non-competes are in widespread use throughout the economy

and pervasive across industries and demographic groups, albeit with some differences in the

magnitude of the prevalence based on industries and demographics. The Commission estimates

that approximately one in five American workers—or approximately 30 million workers—is

subject to a non-compete.65

Individual commenter, FTC-2023-0007-16347.

Individual commenter, FTC-2023-0007-3963.

This is likely a conservative estimate. Surveys of workers likely underreport the share of workers subject to noncompetes, since many workers may not know they are subject to a non-compete. See, e.g., Alexander J.S. Colvin &

Heidi Shierholz, Econ. Policy Inst., Noncompete Agreements, Report (Dec. 10, 2019) at 3.

As described in Part II.F, the inquiry as to whether conduct is an unfair method of

competition under section 5 focuses on the nature and tendency of the conduct, not whether or to

what degree the conduct caused actual harm.66 Although a finding that non-competes are

prevalent is not necessary to support the Commission’s determination that the use of noncompetes by employers is an unfair method of competition, the Commission finds that noncompetes are prevalent and in widespread use throughout the economy, which is why researchers

have observed such significant negative actual effects from non-competes on competitive

conditions in labor markets and markets for products and services. 67

A 2014 survey of workers finds that 18% of respondents work under a non-compete and

38% of respondents have worked under one at some point in their lives. 68 This study has the

broadest and likely the most representative coverage of the U.S. labor force among the

prevalence studies discussed here.69 This study reports robust results contradicting the prior

assumptions of some that non-competes were, in most cases, bespoke agreements with

sophisticated and highly-paid workers. It finds that, among workers without a bachelor’s degree,

14% of respondents reported working under a non-compete at the time surveyed and 35%

reported having worked under one at some point in their lives. 70 For workers earning less than

$40,000 per year, 13% of respondents were working under a non-compete and 33% worked

under one at some point in their lives.71 Furthermore, this survey finds that 53% of workers

See infra note 288 and accompanying text.

See Parts IV.A through IV.C (describing this evidence).

Evan P. Starr, J.J. Prescott, & Norman D. Bishara, Noncompete Agreements in the US Labor Force, 64 J. L. &

Econ. 53, 53 (2021).

The final survey sample of 11,505 responses represented individuals from nearly every demographic in the labor

force. Id. at 58.

Id. at 63.

Id.

covered by non-competes are hourly workers. 72 The survey suggests that a large share of workers

subject to non-competes are relatively low-earning workers. In addition, a survey from the

Federal Reserve Board of Governors found that 11.4% of workers have non-competes, including

workers with relatively low earnings and low levels of education. The survey finds some degree

of geographic heterogeneity, though it finds that large numbers of workers in all regions of the

country have non-competes (including 7.0% of workers in States which broadly do not enforce

non-competes).73

Furthermore, a survey of workers conducted in 2017 estimates that 24.2% of workers are

subject to a non-compete.74 This survey also finds that non-competes are often used together

with other restrictive employment agreements, including non-disclosure agreements (“NDAs”)

and non-recruitment and non-solicitation agreements. 75 A methodological limitation of this

survey is that it is a convenience sample of individuals who visited Payscale.com during the time

period of the survey and is therefore unlikely to be fully representative of the U.S. working

population. While weighting based on demographics helps, it does not fully mitigate this

concern.

Additionally, a 2017 survey of business establishments with 50 or more employees

estimates that 49% of such establishments use non-competes for at least some of their

employees, and 32% of such establishments use non-competes for all of their employees. 76

Michael Lipsitz & Evan Starr, Low-Wage Workers and the Enforceability of Noncompete Agreements, 68 Mgmt.

Sci. 143, 144 (2022) (analyzing data from the Starr, Prescott, & Bishara survey).

Tyler Boesch, Jacob Lockwood, Ryan Nunn, & Mike Zabek, New Data on Non-Compete Contracts and What

They Mean for Workers (2023), https://www.minneapolisfed.org/article/2023/new-data-on-non-compete-contractsand-what-they-mean-for-workers.

Natarajan Balasubramanian, Evan Starr, & Shotaro Yamaguchi, Employment Restrictions on Resource

Transferability and Value Appropriation from Employees (Jan. 18, 2024),

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3814403.

Id. at 11 (reporting that if a worker has a non-compete, there is a 70%-75% chance that all three restrictive

covenants are present).

Colvin & Shierholz, supra note 65 at 1.

Other estimates of non-compete use cover subsets of the U.S. labor force. One 2022

study is based on National Longitudinal Survey of Youth (NLSY) data. 77 The NLSY is an oftenused labor survey conducted by the Bureau of Labor Statistics (“BLS”) that consists of a

nationally representative sample of 8,984 men and women born from 1980-84 and living in the

U.S. at the time of the initial survey in 1997; it is a subset of the workforce by age of worker. 78

The 2022 study using NLSY data reports prevalence of non-competes to be 18%, in line with the

number estimated based on the 2014 survey of workers directed solely at calculating the

prevalence of non-competes.79

Non-competes are pervasive across occupations. For example, a survey of independent

hair salon owners finds that 30% of hair stylists worked under a non-compete in 2015. 80 A

survey of electrical and electronic engineers finds that 43% of respondents signed a noncompete.81 A different study finds that 45% of physicians worked under a non-compete in

2007.82 One study published in 2021 finds that 62% of CEOs worked under a non-compete

between 1992 and 2014.83 Another, published in 2023, supports that finding and reflects an

upward trend in the use of non-competes among executives—specifically, the proportion of

executives working under a non-compete rose from “57% in the early 1990s to 67% in the mid2010s.”84 The 2014 survey reports industry-specific rates ranging from 9% in the Agriculture and

Donna S. Rothstein & Evan Starr, Noncompete Agreements, Bargaining, and Wages: Evidence from the National

Longitudinal Survey of Youth 1997, June 2022 Mthly. Lab. Rev. (2022).

BLS, NLSY97 Data Overview, https://www.bls.gov/nls/nlsy97.htm.

Rothstein & Starr, supra note 77 at 1.

Matthew S. Johnson & Michael Lipsitz, Why Are Low-Wage Workers Signing Noncompete Agreements?, 57 J.

Hum. Res. 689, 700 (2022).

Matt Marx, The Firm Strikes Back: Non-Compete Agreements and the Mobility of Technical Professionals, 76

Am. Socio. Rev. 695, 702 (2011). Calculated as 92.60% who signed a non-compete of the 46.80% who were asked

to sign a non-compete.

Kurt Lavetti, Carol Simon, & William D. White, The Impacts of Restricting Mobility of Skilled Service Workers:

Evidence from Physicians, 55 J. Hum. Res. 1025, 1042 (2020).

Omesh Kini, Ryan Williams, & Sirui Yin, CEO Noncompete Agreements, Job Risk, and Compensation, 34 Rev.

Fin. Stud. 4701, 4707 (2021).

Liyan Shi, Optimal Regulation of Noncompete Contracts, 91 Econometrica 425, 447 (2023).

Hunting category to 32% in the Information category.85 The Balasubramaian et al. survey reports

industry-specific rates ranging from 12% in the Arts, Entertainment, and Recreation category to

30% in the Professional, Scientific, and Technical category. 86 The same survey also reports

occupation-specific rates ranging from 8% in the Community and Social Services category to

32% in the Computer and Mathematical category. 87

In addition, commenters presented survey data on the prevalence of non-competes in

various occupations and industries. The Commission does not rely on these surveys to support its

finding that non-competes are in widespread use throughout the economy. Because the

Commission lacked access to a detailed description of the methodology for these surveys (unlike

for the surveys described previously), the Commission cannot evaluate how credible their

research designs are. However, they generally confirm the Commission’s finding that noncompetes are in widespread use throughout the economy and pervasive across industries and

demographic groups.

For example, commenters reported that 33% of practitioners in the applied behavioral

analysis field reported being subject to a non-compete, 88 along with 68% of cardiologists,89 42%

of colorectal surgeons,90 72% of members of the American Association of Hip and Knee

Starr, Prescott, & Bishara, supra note 68 at 67.

Balasubramanian et al., supra note 74 at 47.

Id.

Kristopher J. Brown, Stephen R. Flora, & Mary K. Brown, Noncompete Clauses in Applied Behavior Analysis: A

Prevalence and Practice Impact Survey, 13 Behavioral Analysis Practice 924 (2020) (survey of 610 workers).

Comment of Am. Coll. of Cardiology, FTC-2023-0007-18077, at 2. The comment did not provide a citation to the

survey or the underlying data, including the number of respondents or the time period.

William C. Cirocco. Restrictive Covenants in Physician Contracts: An American Society of Colon and Rectal

Surgeons’ Survey, 54 Diseases of the Colon and Rectum 482 (2011). The survey examined 157 colorectal surgeons

who had completed their residency in the prior decade.

Surgeons,91 and 31% of wireless telecommunications retail workers. 92 Other commenters cited a

2019 study finding that 29% of businesses where the average wage is below $13 per hour use

non-competes for all their workers.93

Several trade organizations included information in their comments about the percentage

of their members that use non-competes for at least some of their workers, based on surveys of

their membership. For the National Association of Wholesaler-Distributors, this figure was

80%;94 for the Independent Lubricant Manufacturing Association, 69%; 95 for the Michigan

Chamber of Commerce, 73%;96 for the Gas and Welding Distributors Association, 80%; 97 and

for the National Association of Manufacturers, 70%.98 One industry organization said its survey

found that 57% of respondents require workers earning over $150,000 to sign non-competes. 99 A

survey by the Authors Guild finds that 19.2% of respondents reported that non-competes

prevented them from publishing a similar or competing book. 100 The HR Policy Association

Comment of Am. Ass’n of Hip and Knee Surgeons, FTC-2023-0007-21076, at 4. The comment said the internal

poll was conducted in early 2023, but the comment did not provide a citation to the survey or the underlying data,

including the number of respondents.

Comm. Workers of Am. and Nat’l Employment L. Project, Broken Network: Workers Expose Harms of Wireless

Telecom Carriers’ Outsourcing to ‘Authorized Retailers’ (Feb. 2023), https://cwa-union.org/sites/default/files/202302/20230206_BrokenNetwork.pdf, at 12. The survey had 204 respondents.

Colvin & Shierholz, supra note 65 at 13.

Comment of Nat’l Assoc. of Wholesaler-Distribs., FTC-2023-0007-19347, at 2. The comment did not provide a

citation to the survey or the underlying data, including the number of respondents.

Comment of Indep. Lubricant Mfrs. Ass’n, FTC-2023-0007-19445, at 3. The comment did not provide a citation

to the survey or the underlying data, including the number of respondents.

Calculated as 77%*95% (assuming that the 95% reported in their comment applies to the 77% who reported using

restrictive covenants). Comment of Mich. Chamber of Com., FTC-2023-0007-20855. The comment did not provide

a citation to the survey or the underlying data, including the number of respondents.

Comment of Gas and Welding Distribs. Ass’n, FTC-2023-0007-20934, at 2-3. The comment did not provide a

citation to the survey or the underlying data. The comment said the survey took place after the NPRM was proposed

and had 161 respondents.

Comment of Nat’l Ass’n of Mfrs., FTC-2023-0007-20939, at 2 (citing Nat’l Ass’n of Mfrs., Noncompete Survey

Data Report, https://www.nam.org/wp-content/uploads/2023/03/Noncompete_Survey_Data_Report.pdf). The survey

had 150 respondents.

Comment of Soc. for Hum. Res. Mgmt., FTC-2023-0007-20903, at 5 n.2. The comment did not provide a citation

to the survey or the underlying data, including the number of respondents.

100

Comment of The Authors Guild, FTC-2023-0007-20854, at 7. The comment did not provide a citation to the

survey or the underlying data, but said it had 630 respondents.

stated that 75% of respondents indicated they use non-competes for less than 10% of their

workers, and nearly one third indicated they use non-competes for less than 1% of their

workers.101 The association stated that its survey covered 3 million workers and argued that its

survey finding less usage of non-competes was more representative than studies cited in the

NPRM.102 However, the commenter did not provide the data underlying its claims. The Retail

Industry Leaders Association stated that a recent survey of its members indicated that, among

members that use non-competes, the majority do so with less than 1% of their workforce and an

additional quarter use non-competes with less than 10% of their workforce. 103 Additionally, a

commenter referenced a survey of small business owners finding that 48% use non-competes for

their own business.104

Several commenters misrepresented the Commission’s finding related to prevalence as

based on “a single study from 2021” (Starr, Prescott, and Bishara, 2021), which relied on survey

data from 2014. The Commission’s finding is not based on a single study. The NLSY study

reaches similar conclusions about the prevalence of non-competes across the economy, 105 and

the occupation-specific studies indicate that non-competes are pervasive in various

occupations.106 Furthermore, despite its methodological limitations, the data submitted by

commenters generally comport with the estimates reported in the academic literature. One

commenter stated the respondents to the Starr, Prescott, and Bishara survey were not necessarily

representative of the population. The Commission believes that the weighting of the data

101

Comment of HR Policy Ass’n, FTC-2023-0007-20998, at 8.

Id.

103

Comment of Retail Indus. Leaders Ass’n, FTC-2023-0007-20989, at 6. The comment did not provide a citation to

the survey or the underlying data, including the number of respondents or the time period.

104

Comment of Sm. Bus. Majority, FTC-2023-0007-21093 (citing Small Business Majority, Opinion Poll: Small

Business Owners Support Banning Non-Compete Agreements (Apr. 13, 2013),

https://smallbusinessmajority.org/sites/default/files/research-reports/2023-non-compete-poll-report.pdf).

105

See Rothstein & Starr, supra note 77 and accompanying text.

106

See supra notes 80-87 and accompanying text.

102

sufficiently addresses this concern.

Another commenter argued that individuals may misunderstand contracts that they have

signed, leading them to mistakenly believe they are bound by a non-compete. The Commission

does not find this to be a plausible explanation for the high numbers of workers, businesses, and

trade associations that report that non-competes are prevalent.

The Commission appreciates the additional estimates provided by commenters. The

comments broadly corroborate the Commission’s finding that non-competes are used across the

workforce, with some heterogeneity in the magnitude of the prevalence. The Commission finds

that this heterogeneity is insufficient to warrant industry-specific exclusions from coverage under

the final rule in part because employers’ use of non-competes is prevalent across labor markets

and for the reasons discussed in Part V.D regarding requests for exclusions.

II. Legal Authority

A. The History of the Commission and Section 5 of the FTC Act

The FTC Act was enacted in 1914.107 Section 5 of that Act “declared” that “unfair

methods of competition in commerce” are “unlawful,” and it “empowered and directed” the

Commission “to prevent” entities subject to its jurisdiction from “using” such methods. 108

Congress removed certain enumerated industries, activities, or entities—such as banks 109—from

the Commission’s jurisdiction but otherwise envisioned a Commission whose purview would

cover commerce across the national economy.

107

Federal Trade Commission Act of 1914, Pub. L. No. 63-203, 38 Stat. 717, 719 (hereinafter “FTC Act of 1914”).

FTC Act of 1914, 38 Stat. at 719. Section 5 is codified as amended at 15 U.S.C. 45. Congress later amended the

term “in commerce” to “in or affecting commerce.” The Supreme Court has explained that this amended phrase

makes section 5 of the FTC Act “coextensive with the constitutional power of Congress under the Commerce

Clause.” United States v. Am. Bldg. Maintenance Indus., 422 U.S. 271, 277 n.6 (1975). For simplicity, this statement

of basis and purpose often refers to “unfair methods of competition” without the commerce requirement, but the

Commission acknowledges that it has power to prevent only such methods that are in or affect commerce as that

term is defined in the Act. See 15 U.S.C. 44.

109

See 15 U.S.C. 45(a)(2).

108

The term “‘unfair methods of competition’ . . . was an expression new in the law” when it

first appeared in the FTC Act.110 Congress purposely introduced this phrase to distinguish the

Commission’s authority from the definition of “unfair competition” at common law. Because the

“meaning which the common law had given to [‘unfair competition’] was . . . too narrow,”

Congress adopted “the broader and more flexible phrase ‘unfair methods of competition.’” 111

Using this new phrase also made clear that Congress designed section 5 to extend beyond the

reach of other antitrust laws—most notably, the Sherman Act—whose text did not include the

term “unfair methods of competition.”112 In particular, Congress wanted the Commission to

apply a standard that would reach conduct not captured by other antitrust laws and the rule of

reason, which courts applied when interpreting the Sherman Act, making it “impossible to

predict with any certainty” whether courts would condemn the many “practices that seriously

interfere with competition.”113 Allowing the Commission to prevent unfair methods of

competition would also help the Commission achieve a core purpose of the Act: to stop “trade

restraints in their incipiency” before they grew into violations of other antitrust laws. 114

By design, the new phrase “unfair methods of competition” did “not ‘admit of precise

definition.’”115 Congress intentionally gave the Commission flexibility to adapt to changing

circumstances.116 The Supreme Court has affirmed the more inclusive scope of section 5 on

110

A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 532 (1935).

See FTC v. R. F. Keppel & Bro., Inc., 291 U.S. 304, 310-11 (1934); see also Schechter Poultry, 295 U.S. at 532.

112

See E.I. du Pont de Nemours v. FTC (Ethyl), 729 F.2d 128, 136 (2d Cir. 1984) (“Congress’ aim was to protect

society against oppressive anti-competitive conduct and thus assure that the conduct prohibited by the Sherman and

Clayton Acts would be supplemented as necessary and any interstices filled.”).

113

S. Rep. No. 62-1326, at 14 (1913) (hereinafter “Cummins Report”). After analyzing a series of Supreme Court

decisions interpreting the Sherman Act—e.g., Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 60

(1911)—the Senate committee feared that the rule of reason meant that “in each instance it [would be] for the court

to determine whether the established restraint of trade is a due restraint or an undue restraint” and that this made it

“imperative to enact additional legislation.” Cummins Report at 11-12.

114

FTC v. Brown Shoe Co., 384 U.S. 316, 322 (1966); see also FTC v. Motion Picture Advert. Serv. Co., 344 U.S.

392, 394-95 (1953).

115

R.F. Keppel & Bro., 291 U.S. at 312.

116

Id. at 311 n.2.

111

numerous occasions117 and has affirmed the Commission’s power under the Act to condemn

coercive and otherwise unfair practices that have a tendency to stifle or impair competition. 118

Federal appellate courts have likewise consistently held that the Commission’s authority under

section 5 extends beyond “the letter” of other antitrust laws. 119

Congress further expanded the Commission’s jurisdiction over time. Congress extended

the Commission’s authority in 1938 by adding the further prohibition on “unfair or deceptive

acts or practices.”120 And in 1975, Congress amended the phrase “in commerce” in section 5 to

“in or affecting commerce,” a change that was “specifically designed to expand the

Commission’s jurisdiction . . . to make it coextensive with the constitutional power of Congress

under the Commerce Clause.”121

Congress gave careful thought to the structure of the FTC as an independent agency

entrusted with this considerable responsibility. The Commission would consist of five members,

no more than three of whom could be part of the same political party, who would serve for terms

of seven years.122 The Commission would draw on trained expert staff to develop the body of

law regarding what constitutes unfair methods of competition (and, later, unfair and deceptive

117

See, e.g., id. at 311; A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 532 (1935); Brown Shoe Co.,

384 U.S. at 320-22.

118

FTC v. Texaco, 393 U.S. 223, 225-26 (1968) (citing Atl. Refin. Co. v. FTC, 381 U.S. 357, 376 (1965)).

119

Spiegel, Inc. v. FTC, 540 F.2d 287, 292 (7th Cir. 1976) (quoting FTC v. Sperry & Hutchinson Co., 405 U.S. 233,

244 (1972)); cf., Chuck’s Feed & Seed Co. v. Ralston Purina Co., 810 F.2d 1289, 1292-93 (4th Cir. 1987).

120

Federal Trade Commission Act, Public Law No. 447, 75th Cong., 3d Sess. (March 21, 1938) c. 49; 52 Stat. 111

(1938).

121

United States v. Am. Bldg. Maintenance Indus., 422 U.S. 271, 277 n.6 (1975). As noted, the Commission’s

authority does not reach certain enumerated industries or activities—a list that has also grown over time. See 15

U.S.C. 45(a)(2); see also Part II.E.1. Some of these industries are statutorily prohibited from engaging in unfair or

deceptive practices or unfair methods of competition under different laws overseen by other agencies. See, e.g., 49

U.S.C. 41712(a) (allowing the Secretary of Transportation to “decide whether an air carrier, foreign air carrier, or

ticket agent” has engaged in such conduct).

122

15 U.S.C. 41.

practices),123 both through acting as “a quasi judicial body”124 that determines whether conduct is

an unfair method of competition in adjudications and through authority to promulgate legislative

rules delineating conduct that constitutes an unfair method of competition. Recognizing that the

Commission is an expert agency in making such determinations about anticompetitive conduct,

courts reviewing Commission determinations as to what practices constitute an unfair method of

competition have given the Commission’s decisions “great weight.” 125

The FTC Act today reflects a careful balance from Congress. Congress has directed the

Commission to proceed against a broader range of anticompetitive conduct than other antitrust

laws like the Sherman and Clayton Acts can reach. On the other hand, Congress has never

established a private right of action under section 5,126 nor has it authorized the Commission to

recover civil penalties or other monetary relief from parties who engage in unfair methods of

competition.127 Instead, the Commission may either pursue an adjudication under section 5(b) or

seek an injunction in Federal court under section 13(b) against a party that has engaged in an

unfair method of competition.128 As explained below, it may also promulgate rules prohibiting

unfair methods of competition. The Commission cannot obtain civil penalties or other monetary

relief against parties for using an unfair method of competition, although it can obtain civil

penalties in court if a party is ordered to cease and desist from a violation and fails to do so. 129

123

Id. (anticipating that the Commission would “build up a comprehensive body of information for the use and

advantage of the Government and the business world”); id. at 11,092 (“[W]e want trained experts; we want

precedents; we want a body of administrative law built up.”).

124

A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 533 (1935).

125

FTC v. Cement Inst., 333 U.S. 683, 720 (1948); Atl. Ref. Co. v. FTC, 381 U.S. 357, 368 (1965); FTC v. Texaco,

393 U.S. 223, 226 (1968); Official Airline Guides, Inc. v. FTC , 630 F.2d 920, 927 (2d. Cir. 1980) (quoting Cement

Inst., 333 U.S. at 720); see also FTC v. Motion Picture Advert. Serv. Co., 344 U.S. 392, 396 (1953); FTC v. Ind.

Fed’n of Dentists, 476 U.S. 447, 454 (1986).

126

See, e.g., Holloway v. Bristol-Myers Corp., 485 F.2d 986, 988-89 (D.C. Cir. 1973); Liu v. Amerco, 677 F.3d 489,

492 (1st Cir. 2012).

127

Congress has authorized the FTC to seek civil monetary remedies against parties who engage in unfair or

deceptive acts or practices under some circumstances. See 15 U.S.C. 45(m); 15 U.S.C. 57b.

128

See 15 U.S.C. 45(b); 15 U.S.C. 53(b).

129

See 15 U.S.C. 45(l).

B. The Commission’s Authority to Promulgate the Rule

Alongside section 5, Congress adopted section 6(g) of the Act, in which it authorized the

Commission to “make rules and regulations for the purpose of carrying out the provisions of” the

FTC Act, which include the Act’s prohibition of unfair methods of competition. 130 The plain text

of section 5 and section 6(g), taken together, empower the Commission to promulgate rules for

the purpose of preventing unfair methods of competition. That includes legislative rules defining

certain conduct as an unfair method of competition.

The Commission has exercised its authority under section 6(g) to promulgate legislative

rules on many occasions stretching back more than half a century. Between 1963 and 1978, 131

the Commission relied on section 6(g) to promulgate the following rules: 1) a rule declaring it an

unfair method of competition (“UMC”) and an unfair or deceptive act or practice (“UDAP”) to

mislead consumers about the size of sleeping bags by representing that the “cut size” represents

the finished size;132 2) a rule declaring it a UMC and UDAP to use the word “automatic” or

similar words to describe household electric sewing machines; 133 3) a rule declaring it a UMC

and UDAP to misrepresent nonprismatic instruments as prismatic; 134 4) a rule declaring it a

130

15 U.S.C. 46(g).

As explained in more detail later in this Part, Congress added section 18 to the FTC Act in 1975, and that section

provides the process the Commission must go through to promulgate rules defining unfair or deceptive acts or

practices. See Magnuson-Moss Warranty—Federal Trade Commission Improvement Act, Pub. L. 93-637, 88 Stat.

2183 (Jan. 4, 1975) (hereinafter “Magnuson-Moss Act”); 15 U.S.C. 57a. Congress provided, however, that “[a]ny

proposed rule under section 6(g) . . . with respect to which presentation of data, views, and arguments was

substantially completed before” section 18 was enacted “may be promulgated in the same manner and with the same

validity as such rule could have been promulgated had” section 18 “not been enacted.” 88 Stat. 2198; 15 U.S.C. 57a

note. This list therefore includes a handful of rules promulgated under section 6(g) but after 1975 because those

rules were substantially completed before section 18’s enactment.

132

Advertising and Labeling as to Size of Sleeping Bags, 28 FR 10900 (Oct. 11, 1963), repealed by 60 FR 65528

(Dec. 20, 1995).

133

Misuse of “Automatic” or Terms of Similar Import as Descriptive of Household Electric Sewing Machines, 30

FR 8900 (Jul. 15, 1965), repealed by 55 FR 23900 (June 13, 1990).

134

Deception as to Nonprismatic and Partially Prismatic Instruments Being Prismatic Binoculars, 29 FR 7316 (Jun.

5, 1964), repealed by 60 FR 65529 (Dec. 20, 1995).

131

UMC and UDAP to advertise or market dry cell batteries as “leakproof;” 135 5) a rule declaring it

a UMC and UDAP to misrepresent the “cut size” as the finished size of tablecloths and similar

products;136 6) a rule declaring it a UMC and UDAP to misrepresent that belts are made of

leather if they are made of other materials;137 7) a rule declaring it a UMC and UDAP to

represent used lubricating oil as new;138 8) a rule declaring it a UDAP to fail to disclose certain

health warnings in cigarette advertising and on cigarette packaging (“Cigarette Rule”); 139 9) a

rule declaring it a UMC and UDAP to fail to disclose certain features of light bulbs on

packaging;140 10) a rule declaring it a UMC and UDAP to misrepresent the actual size of the

viewable picture area on a TV;141 11) a rule declaring a presumption of a violation of section

2(d) and (e) of the amended Clayton Act for certain advertising and promotional practices in the

men’s and boy’s clothing industry;142 12) a rule declaring it a UMC and UDAP to fail to make

certain disclosures about the handling of glass fiber products and contact with certain products

containing glass fiber; 143 13) a rule declaring it a UMC and UDAP to make certain

135

Deceptive Use of “Leakproof,” “Guaranteed Leakproof,” etc., as Descriptive of Dry Cell Batteries, 29 FR 6535

(May 20, 1964), repealed by 62 FR 61225 (Nov. 17, 1997).

136

Deceptive Advertising and Labeling as to Size of Tablecloths and Related Products, 29 FR 11261 (Aug. 5, 1964),

repealed by 60 FR 65530 (Dec. 20, 1995).

137

Misbranding and Deception as to Leather Content of Waist Belts, 29 FR 8166 (Jun. 27, 1964), repealed by 61 FR

25560 (May 22, 1996).

138

Deceptive Advertising and Labeling of Previously Used Lubricating Oil, 29 FR 11650 (Aug. 14, 1964), repealed

by 61 FR 55095 (Oct. 24, 1996).

139

Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking, 29 FR

8324 (July 2, 1964), repealed by 30 FR 9485 (July 29, 1965). As explained in more detail herein, Congress

superseded this rule with legislation.

140

Incandescent Lamp (Light Bulb) Industry, 35 FR 11784 (Jul. 23, 1970), repealed by 61 FR 33308 (Jun. 27,

1996).

141

Deceptive Advertising as to Sizes of Viewable Pictures Shown by Television Receiving Sets, 31 FR 3342 (Mar.

3, 1966), repealed by 83 FR 50484 (Oct. 9, 2018).

142

Discriminatory Practices in Men’s and Boys’ Tailored Clothing Industry, 32 FR 15584 (Nov. 9, 1967), repealed

by 59 FR 8527 (Feb. 23, 1994).

143

Failure to Disclose that Skin Irritation May Result from Washing or Handling Glass Fiber Curtains and Draperies

and Glass Fiber Curtain and Drapery Fabrics, 32 FR 11023 (Jul. 28, 1967), repealed by 60 FR 65532 (Dec. 20,

1995).

misrepresentations about transistors in radios; 144 14) a rule declaring it a UDAP to fail to disclose

certain effects about inhaling certain aerosol sprays; 145 15) a rule declaring it a UMC and UDAP

to misrepresent the length or size of extension ladders;146 16) a rule declaring it a UDAP to make

certain misrepresentations, or fail to disclose certain information, about games of chance; 147 17)

a rule declaring it a UMC and UDAP to mail unsolicited credit cards; 148 18) a rule declaring it a

UMC and UDAP to fail to disclose the minimum octane number on gasoline pumps (“Octane

Rule”);149 19) a rule declaring it a UMC and UDAP to sell finished articles of clothing without a

permanent tag or label disclosing care and maintenance instructions; 150 20) a rule declaring a

UMC and UDAP for a grocery store to offer products for sale at a stated price if those products

will not be readily available to consumers (“Unavailability Rule”); 151 21) a rule declaring it a

UMC and UDAP for a seller to fail to make certain disclosures in connection with a negative

option plan (“Negative Options Rule”);152 22) a rule declaring it a UDAP for door-to-door sellers

to fail to furnish certain information to buyers; 153 23) a rule declaring it a UMC and UDAP to fail

to make certain disclosures about sound power amplification for home entertainment products; 154

24) a rule declaring it a UDAP for sellers failing to include certain contract provisions preserving

144

Deception as to Transistor Count of Radio Receiving Sets, Including Transceivers, 33 FR 8446 (Jun. 7, 1968),

repealed by 55 FR 25090 (Jun. 20, 1990).

145

Failure to Disclose the Lethal Effects of Inhaling Quick-Freeze Aerosol Spray Products Used for Frosting

Cocktail Glasses, 34 FR 2417 (Feb. 20, 1969), repealed by 60 FR 66071 (Dec. 21, 1995).

146

Deceptive Advertising and Labeling as to Length of Extension Ladders, 34 FR 929 (Jan. 22, 1969), repealed by

60 FR 65533 (Dec. 20, 1995).

147

Games of Chance in the Food Retailing and Gasoline Industries, 34 FR 13302 (Aug. 16, 1969), repealed by 61

FR 68143 (Dec. 27, 1996).

148

Unsolicited Mailing of Credit Cards, 35 FR 4614 (Mar. 17, 1970), repealed by 36 FR 45 (Jan. 5, 1971). This rule

was rescinded in response to an amendment to the Truth in Lending Act that prohibited similar conduct. See Pub. L.

91-508, 84 Stat. 1126 (1970).

149

Posting of Minimum Octane Numbers on Gasoline Dispensing Pumps, 36 FR 23871 (Dec. 16, 1971), repealed by

43 FR 43022 (Sept. 22, 1978). This rule was superseded by the Petroleum Marketing Practices Act, Pub. L. No. 95297, 92 Stat. 333 (June 19, 1978). A similar regulation was promulgated under that law at 16 CFR part 306.

150

Care Labeling of Textile Wearing Apparel, 36 FR 23883 (Dec. 16, 1971).

151

Retail Food Store Advertising and Marketing Practices, 36 FR 8777 (May 13, 1971).

152

Use of Negative Option Plans by Sellers in Commerce, 38 FR 4896 (Feb. 22, 1973).

153

Cooling-off Period for Door-to-Door Sales, 37 FR 22934 (Oct. 26, 1972).

154

Power Output Claims for Amplifiers Used in Home Entertainment Products, 39 FR 15387 (May 3, 1974).

claims and defenses in consumer credit contracts (“Holder Rule”); 155 25) a rule declaring it a

UMC or UDAP to solicit mail order merchandise from a buyer unless the seller can ship the

merchandise within 30 days (“Mail Order Rule”);156 and 26) a rule declaring it a UDAP for a

franchisor to fail to furnish a franchisee with certain information.157

Some of these rules attracted significant attention. For instance, the Commission began

the rulemaking process to require warnings on cigarette packages just one week after the

Surgeon General’s “landmark report” that determined smoking is a health hazard, 158 and that rule

was front-page news.159 Following a lobbying campaign by the tobacco industry,160 Congress

supplanted the Commission’s regulation with the Cigarette Labeling and Advertising Act but did

not disturb the Commission’s rulemaking authority.161 The Unavailability Rule was likewise

front-page news upon its release in 1971, and Congress left it intact. 162

In National Petroleum Refiners Association v. FTC (“Petroleum Refiners”), the D.C.

Circuit expressly upheld the Octane Rule as a proper exercise of the Commission’s power under

155

Preservation of Consumers’ Claims and Defenses, 40 FR 53506 (Nov. 18, 1975).

Mail Order Merchandise, 40 FR 49492 (Oct. 22, 1975) (regulatory text), 40 FR 51582 (Nov. 5, 1975) (statement

of basis and purpose). The Mail Order Rule has since been updated to become the Mail, Internet, or Telephone

Order Merchandise Rule, or MITOR. See 79 FR 55619 (Sept. 17, 2014). The updates to the rule were based on the

Commission’s authority to regulate unfair or deceptive acts or practices.

157

Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures, 43 FR

59614 (Dec. 21, 1978).

158

Teresa Moran Schwartz & Alice Saker Hrdy, FTC Rulemaking: Three Bold Initiatives and Their Legal Impact, 23 (Sept. 22, 2004).

159

U.S. to Require Health Warning for Cigarettes, N.Y. Times (June 25, 1964) at 1, 15 (tobacco industry indicating

plans to immediately challenge the Commission’s authority to issue the regulation),

https://www.nytimes.com/1964/06/25/archives/us-to-require-health-warning-for-cigarettes-trade-commissionorders.html.

160

Tobacco Inst., Tobacco—A Vital U.S. Industry (1965),

https://acsc.lib.udel.edu/exhibits/show/legislation/cigarette-labeling.

161

Pub. L. 89-92, 79 Stat. 282 (July 27, 1965); see 15 U.S.C. 1331 et seq.

162

FTC Bars Grocery Ads for Unavailable Specials, N.Y. Times (May 13, 1971) at 1,

https://www.nytimes.com/1971/05/13/archives/f-t-c-bars-grocery-ads-for-unavailable-specials-ftc-bars-grocery.

html; 16 CFR 424.1 and 424.2. The rule was amended after its enactment in 1971 to add an exception and defenses

but otherwise remains intact as promulgated. Amendment to Trade Regulation Rule Concerning Retail Food Store

Advertising and Marketing Practices, 54 FR 35456-08 (Aug. 28, 1989); see also Retail Food Store Advertising and

Marketing Practices Rule, 79 FR 70053-01 (Nov. 25, 2014).

156

section 6(g) to make rules regulating both unfair methods of competition and unfair or deceptive

acts or practices.163 After construing “the words of the statute creating the Commission and

delineating its powers,” the court held “that under the terms of its governing statute … and under

Section 6(g) … the Federal Trade Commission is authorized to promulgate rules defining the

meaning of the statutory standards of the illegality the Commission is empowered to prevent.” 164

That interpretation was also “reinforced by the construction courts have given similar provisions

in the authorizing statutes of other administrative agencies.” 165 The Seventh Circuit later agreed

with the D.C. Circuit’s decision and “incorporate[d] [it] by reference” when rejecting a challenge

to the Mail Order Rule.166

Following such rulemakings and the D.C. Circuit’s confirmation of the Commission’s

rulemaking power in Petroleum Refiners, Congress in 1975 enacted a new section 18 of the FTC

Act. This new section introduced special procedures, beyond those required under the

Administrative Procedure Act, for promulgating rules for unfair or deceptive acts or practices,

and it eliminated the Commission’s authority to issue such rules under section 6(g). 167 But

Congress pointedly chose not to restrict the Commission’s authority to promulgate rules

regulating unfair methods of competition under section 6(g). That choice was deliberate. While

considering this legislation, Congress knew that the Commission had promulgated rules

regulating unfair methods of competition and that the D.C. Circuit in Petroleum Refiners had

163

Nat’l Petroleum Refiners Ass’n v. FTC, 482 F.2d 672 (D.C. Cir. 1973).

Nat’l Petroleum Refiners, 482 F.2d at 674, 698; see also Am. Fin. Servs. Ass’n v. FTC, 767 F.2d 957, 967 (D.C.

Cir. 1985) (concluding, after extensive review of the legislative history related to the FTC’s rulemaking authority

originating in 1914 and extending through amendments to the FTC Act in 1980, that “Congress has not at any time

withdrawn the broad discretionary authority originally granted the Commission in 1914 to define unfair practices on

a flexible, incremental basis.”).

165

Nat’l Petroleum Refiners, 482 F.2d at 678.

166

United States v. JS & A Grp., Inc., 716 F.2d 451, 454 (7th Cir. 1983).

167

Magnuson-Moss Act, 88 Stat. 2183; see 15 U.S.C. 57a.

164

confirmed the Commission’s authority to do so. 168 And Congress expressly considered—but

rejected—an amendment to the FTC Act under which “[t]he FTC would have been prohibited

from prescribing rules with respect to unfair competitive practices.” 169

Instead, the enacted section 18 confirmed the Commission’s authority to make rules

under section 6(g). The law expressly preserved “any authority of the Commission to prescribe

rules (including interpretive rules), and general statements of policy, with respect to unfair

methods of competition in or affecting commerce.”170 Congress also made clear that Section 18

“shall not affect the validity of any rule which was promulgated under section 6(g).” 171 And it

provided that “[a]ny proposed rule under section 6(g)” with certain components that were

“substantially completed before” section 18’s enactment “may be promulgated in the same

manner and with the same validity as such rule could have been promulgated had this section not

been enacted.”172 Among the substantially completed rules at the time was the Mail Order Rule,

which proposed to define—and upon promulgation did define—certain conduct as both an unfair

method of competition and an unfair or deceptive act or practice. 173 The 1975 legislation thus

expressly permitted the Commission to promulgate a rule under section 6(g) that defined an

unfair method of competition and evinces Congress’s intent to leave in place the Commission’s

authority to promulgate such rules under section 6(g). As the Seventh Circuit later put it,

“Congress . . . considered the controversy surrounding the Commission’s substantive rulemaking

power under Section 6(g) to have been settled by the Octane Rating case.”174

168

S. Rep. No. 93-151, at 32 (1973).

H.R. Conf. Rep. No. 93-1606, at 30 (1974).

170

15 U.S.C. 57a(a)(2).

171

Magnuson-Moss Act, 88 Stat. 2183.

172

Magnuson-Moss Act, 88 Stat. 2183.

173

See Undelivered Mail Order Merchandise and Services, 36 FR 19092 (Sept. 28, 1971) (initial NPRM); 39 FR

9201 (Mar. 8, 1974) (amended NPRM); 40 FR 49492 (Oct. 22, 1975) (final regulatory text).

174

United States v. JS & A Grp., 716 F.2d 451, 454 (7th Cir. 1983).

169

Congress again confirmed the Commission’s authority to promulgate rules regulating

unfair methods of competition under section 6(g) when it enacted section 22 of the FTC Act as

part of the Federal Trade Commission Improvements Act of 1980. 175 Section 22 imposes certain

procedural requirements the Commission must follow when it promulgates any “rule.” Section

22(a) defines “rule” as “any rule promulgated by the Commission under section 6 or section 18”

while excluding from that definition “interpretive rules, rules involving Commission

management or personnel, general statements of policy, or rules relating to Commission

organization, procedure, or practice.”176 Thus, by its terms, section 22(a) demonstrates the 1980

Congress’s understanding that the Commission maintained authority to promulgate rules under

section 6 that are not merely “interpretive rules, rules involving Commission management or

personnel, general statements of policy, or rules relating to Commission organization, procedure,

or practice.”177 Section 22 envisions rules that will have the force of law as legislative rules and

defines “rule” based on whether it may “have an annual effect on the national economy of

$100,000,000 or more,” “cause a substantial change in the cost or price of goods or services,” or

“have a significant impact upon” persons and consumers. 178 Section 22(b) of the Act similarly

contemplates authority to make legislative rules by imposing regulatory analysis obligations on

any rules that the Commission promulgates under section 6. 179 The specific obligations in section

22(b), such as the requirement for the Commission to conduct a cost-benefit analysis, assume

that section 6(g) authorizes substantive and economically significant rules.

Both the 1975 and 1980 amendments to the FTC Act thus indicate that Congress

175

Pub. L. 96-252, 94 Stat. 374 (1980).

Id.; see 15 U.S.C. 57b-3(a)(1).

177

15 U.S.C. 57b-3(a)(1).

178

Id.

179

15 U.S.C. 57b-3(b).

176

understood the Commission possessed rulemaking power under section 6(g) and chose to leave

that authority in place.180 As the Supreme Court has observed, “[t]he long time failure of

Congress to alter” a statutory provision, like section 6(g) here, “after it had been judicially

construed, and the enactment by Congress of legislation which implicitly recognizes the judicial

construction as effective, is persuasive of legislative recognition that the judicial construction is

the correct one.”181 That is especially true when, as here, “the matter has been fully brought to

the attention of the public and the Congress, the latter has not seen fit to change the statute.” 182

Were there any doubt that the 1914 Congress granted the Commission the authority to make

rules under section 6(g) to prevent unfair methods of competition, the Congresses of 1975 and

1980 eliminated such doubt by ratifying the D.C. Circuit’s decision holding that the Commission

has such authority.

C. Comments and Responses Regarding the Commission’s Legal Authority

The Commission received many comments supporting, discussing, or questioning its

authority to promulgate the final rule. Numerous commenters supported that the Commission has

such authority, including, among others, legal scholars and businesses. 183 In addition, hundreds

of small businesses—hailing from 45 States and the District of Columbia—joined a comment by

the Small Business Majority supporting the final rule.184

Commenters questioning the Commission’s authority typically advanced one of three

arguments. First, some commenters claimed that the FTC Act does not grant the Commission

authority to promulgate the rule. Second, some commenters contended that the validity of non180

Congress has also amended section 6 since the D.C. Circuit decided Petroleum Refiners, but it left section 6(g)

untouched. See Pub. L. 109-455, 120 Stat. 3372 (2006).

181

Apex Hosiery Co. v. Leader, 310 U.S. 469, 488 (1940).

182

Id. at 489.

183

See, e.g., Comment of Lev Menand et al., FTC-2023-0007-20871; Comment of Peter Shane et al., FTC-20230007-21024; Comment of Yelp, FTC-2023-0007-20974; Comment of Veeva Systems, FTC-2023-0007-18078.

184

Comment of Sm. Bus. Majority, FTC-2023-0007-21022.

competes is a major question that Congress has not given the Commission the authority to

address. And third, some commenters argued that Congress had impermissibly delegated to the

Commission authority to promulgate nationwide rules governing methods of competition. A

smaller number of comments asserted other, miscellaneous reasons the Commission allegedly

lacked authority to promulgate the rule. The Commission has considered these comments and

disagrees for the reasons explained below.

1. The Commission’s Authority Under the FTC Act

The Commission received numerous comments claiming that it lacks authority under the

FTC Act to promulgate rules prohibiting unfair methods of competition. The Commission

disagrees. Congress expressly granted the Commission authority to promulgate such rules in the

original FTC Act of 1914, Congress enacted legislation in 1975 expressly preserving that

authority,185 and it imposed requirements in 1980 that presumed that authority.

The Commission is not persuaded by commenters’ arguments in opposition to its

authority. For instance, some commenters argued that Congress’s choice to exclude certain

industries from the Commission’s jurisdiction indicates that Congress did not intend to give the

Commission power to pass rules that affect commerce across the national economy. 186 But

Congress expressly “empowered and directed” the Commission to prevent unfair methods of

competition throughout the economy, 187 in any activities “in or affecting commerce,” subject

only to limited exceptions. The final rule will apply only to the extent that the Commission has

jurisdiction under the FTC Act. The Act does not limit the Commission’s authority to pursue, for

185

Some commenters argued that the 1975 Magnuson-Moss Act, which created additional procedures the

Commission must use to promulgate rules regulating unfair or deceptive acts or practices, implies that the

Commission entirely lacks authority to promulgate rules regulating unfair methods of competition. The Commission

disagrees with these comments and notes the effect of the 1975 legislation, which preserved the Commission’s

existing rulemaking authority.

186

E.g., Comment of Fed’n of Am. Hosps., FTC-2023-0007-21034.

187

15 U.S.C. 45(a)(2).

example, industry-specific rulemaking. Where Congress wished to limit the scope of the

Commission’s authority over particular entities or activities, it did so expressly, demonstrating its

intent to give the Commission broad enforcement authority over activities in or affecting

commerce outside the scope of the enumerated exceptions.188 That section 22 of the FTC Act

requires the Commission to perform a regulatory analysis for amendments to rules based on,

inter alia, “their annual effect on the national economy” confirms the same. 189

Other commenters argued that the Commission is relying on vague or ancillary

provisions for its authority and invoked the familiar refrain that Congress “does not . . . hide

elephants in mouseholes.”190 None of the provisions on which the Commission is relying are

either vague or ancillary. As explained earlier, preventing unfair methods of competition is at the

core of the Commission’s mandate, the plain text of the Act gives the Commission rulemaking

authority to carry out that mandate, and the Commission has exercised this rulemaking authority

before.191 The D.C. Circuit and Seventh Circuits have upheld that exercise of authority, and

Congress preserved this authority in subsequent amendments to the Act following the D.C.

Circuit’s decision.192

Additional commenters cited select legislative history from the 1914 FTC Act to suggest

the Commission lacks authority to promulgate rules regulating competition. 193 “[T]here is no

reason to resort to legislative history” when, as here, the text of the statute speaks plainly. 194

188

15 U.S.C. 45(a)(2),(3).

15 U.S.C. 57b-3 (outlining requirements of the Commission’s rulemaking process for new rules and

amendments); see also Part II.E (discussing the Commission’s jurisdiction).

190

Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001); see, e.g., Comment of La. And 12 Other States,

FTC-2023-0007-21094.

191

See Part II.B (discussing the Commission’s history of using section 6(g) to promulgate rules).

192

Id.

193

E.g., Comment of Nat’l Ass’n of Mfrs., FTC-2023-0007-20939; Comment of La. And 12 Other States, FTC2023-0007-21094.

194

United States v. Gonzales, 520 U.S. 1, 6 (1997).

189

Even if that were not the case, however, the legislative history does not unambiguously compel a

different conclusion. Faced with similar arguments to those raised by commenters here, in

National Petroleum Refiners, the D.C. Circuit conducted an exhaustive review of the 1914 FTC

Act and concluded that “the legislative history of section 5 and Section 6(g) is ambiguous” and

“certainly does not compel the conclusion that the Commission was not meant to exercise the

power to make substantive rules with binding effect[.]” 195 As the D.C. Circuit explained, even

individual statements by some Congresspeople that might suggest otherwise, 196 when properly

contextualized, “can be read to support substantive rule-making of the kind asserted by the”

Commission.197

Statements from the enactment of the 1975 Magnuson Moss Act, which added section 18

to the FTC Act, confirms the Commission’s authority to promulgate rules under section 6(g).

That legislative history reveals Congress in 1975 made a considered decision to reject an effort

to overturn the D.C. Circuit’s interpretation of the FTC Act and instead confirmed that section

6(g) authorizes the Commission to promulgate legislative rules concerning unfair methods of

competition.198 More importantly, these sorts of individual statements cannot trump the plain text

195

Nat’l Petroleum Refiners Ass’n v. FTC, 482 F.2d 672, 686 (D.C. Cir. 1973).

Id. at 704; see also, e.g., Comment from La. and 12 Other States, FTC-2023-0007-21094 (identifying statements

and failed bills that, the commenters say, show the Commission was not intended to possess rulemaking authority).

197

Nat’l Petroleum Refiners, 482 F.2d at 709.

198

For example, while the Senate was considering amendments to the FTC Act, Senator Hart read excerpts of Nat’l

Petroleum Refiners into the record. See 120 Cong. Rec. 40712 (Dec. 18, 1974). These short excerpts included the

court acknowledging that it was considering whether the Commission “is empowered to promulgate substantive

rules” that would “give greater specificity and clarity to the broad standard of illegality—‘unfair methods of

competition’ . . .—which the agency is empowered to prevent.” Id. (quoting Nat’l Petroleum Refiners, 482 F.2d at

673). Senator Hart then explained that the “procedural requirements . . . respecting FTC rulemaking” in the bill

under consideration “are limited to unfair or deceptive acts or practices rules.” Id. “These provisions and

limitations,” he explained, “are not intended to affect the Commission’s authority to prescribe and enforce rules

respecting unfair methods of competition.” Id. “Rules respecting unfair methods of competition,” Senator Hart said,

“should continue to be prescribed in accordance with” the APA. Id.; see also Comment of Lev Menand et al., FTC2023-0007-20871 at 3-6 (recounting legislative history that preceded the 1975 amendments to the FTC Act).

196

of the Act that Congress passed,199 which gave the Commission the authority “to make rules and

regulations for the purpose of carrying out the provisions” of the FTC Act. Indeed, even if the

legislative history were to be selectively read to cut against the Commission’s authority, the

Commission would still conclude that section 6(g) confers authority to promulgate this final rule

because the plain text of the statute (including both the original 1914 Act and subsequent enacted

amendments to the FTC Act) unambiguously confers that authority.

In short, neither the legislative history of the FTC Act, nor any of the other arguments

that commenters raised about the Commission’s rulemaking authority overcome the plain

meaning of the Act or Congress’s ratification of the Commission’s power to make rules

preventing unfair methods of competition, as discussed in Part II.B. 200

The Commission acknowledges that individual members of the Commission have, at

times, disclaimed the Commission’s authority to promulgate rules regulating unfair methods of

competition.201 The statement of an individual Commissioner does not reflect the views of or

bind “[t]he Commission itself,” which has concluded—just as it did when it issued such rules in

the past—that it does possess such authority. 202 In any event, the Commission has reviewed these

statements, along with the many comments it received, and does not believe any of the

arguments raised in support of that position overcome the plain meaning of the FTC Act

provisions.

2. Major Questions Doctrine

Many commenters assert that the Commission lacks the authority to adopt the final rule

199

See Barnhart v. Sigmon Coal Co., 534 U.S. 438, 457 (2002) (“Floor statements from two Senators [who were

sponsors of the bill] cannot amend the clear and unambiguous language of a statute.”).

200

This includes arguments about the legislative intent, structure, or post-enactment history of the 1914 FTC Act.

201

See, e.g., Nat’l Petroleum Refiners, 482 F.2d at 695-96 & n. 32, 38-39; NPRM at 3544 (dissenting statement of

Commissioner Wilson).

202

Nat’l Petroleum Refiners, 482 F.2d at 694; see also 16 CFR 4.14(c) (“Commission action” requires “the

affirmative concurrence of a majority of the participating Commissioners”).

based on the major questions doctrine. That doctrine, as the Supreme Court recently explained in

West Virginia v. EPA, “teaches that there are extraordinary cases . . . in which the history and the

breadth of the authority that the agency has asserted, and the economic and political significance

of that assertion, provide a reason to hesitate before concluding that Congress meant to confer

such authority.”203 In such cases, “something more than a merely plausible textual basis for the

agency action is necessary. The agency instead must point to clear congressional authorization

for the power it claims.”204 Having considered the factors that the Supreme Court has used to

identify major questions, the Commission concludes that the final rule does not implicate the

major questions doctrine. And even if that doctrine did apply, the Commission concludes that

Congress provided clear authorization for the Commission to promulgate this rule. 205

The agency authority underlying this final rule rests on firm historical footing. There is

nothing novel about the Commission’s assertion of authority to promulgate legislative rules

under section 6(g).206 As explained in Part II.B, the Commission has used this authority for more

than 60 years to promulgate many rules defining unfair methods of competition and/or unfair or

deceptive acts or practices.207 The Commission’s use of this power sometimes garnered

significant attention, such as when it made national news by requiring cigarette warnings in the

immediate wake of the Surgeon General’s groundbreaking report on the health effects of

203

W. Va. v. EPA, 597 U.S. 697, 721 (2022) (cleaned up).

Id. at 723 (cleaned up).

205

The Commission notes that some commenters either implicitly or explicitly focused on the Commission’s

rulemaking authority, as opposed to the Commission’s authority to define non-competes as an unfair method of

competition, as a major question. The Commission has already addressed the source of its rulemaking authority, see

Part II.B. But to be clear, the Commission concludes that neither its rulemaking authority under section 6(g) nor its

authority to use that power to define non-competes as an unfair method of competition implicates the major

questions doctrine, and that even assuming either did, Congress has provided express statutory authority for both.

206

W. Va. v. EPA, 597 U.S. at 725.

207

See Part II.B (discussing the Commission’s history of promulgating rules under section 6(g)).

204

smoking.208 And the Commission’s rulemaking authority was long ago “addressed”—and

affirmed—“by a court.”209 Moreover, after that high-profile rulemaking and judicial affirmation,

Congress considered—and twice reaffirmed—the Commission’s authority to issue legislative

rules defining unfair methods of competition under section 6(g). 210 Indeed, even when Congress

decided to displace the FTC’s Cigarette Rule with legislation, it left the Commission’s

rulemaking authority in place.211 Likewise, when Congress added procedural steps that the

Commission must take when promulgating rules concerning unfair or deceptive acts or practices,

it expressly allowed the Commission to complete certain ongoing rulemakings, including one

that relied on section 6(g) to define an unfair method of competition. 212 This is not a situation

where Congress “conspicuously and repeatedly” declined to grant the agency the claimed

power.213

Nor does the substance of the rule represent any departure from the Commission’s past

practices. Since its establishment in 1914, the Commission has had the authority to determine

whether given practices constitute unfair methods of competition. Rather than trying to define all

the many and varied practices that are unfair, Congress empowered the Commission to respond

to changing market conditions and to bring specialized expertise to bear when making unfairness

determinations.214 As noted in Part I.B, the Commission has previously secured consent orders

208

See Part II.B (discussing Cigarette Rule and Holder Rule); see also “U.S. to Require Health Warning for

Cigarettes,” N.Y. Times (June 25, 1964) at 1, 15 (tobacco industry indicating plans to immediately challenge the

Commission’s authority to issue the regulation).

209

W. Va. v. EPA, 597 U.S. at 725; see Part II.B (discussing decisions from the D.C. Circuit and Seventh Circuit

affirming the Commission’s rulemaking power under section 6(g)).

210

See Part II.B (discussing the history and content of sections 18 and 22 of the FTC Act).

211

See Federal Cigarette Labeling and Advertising Act, Pub. L. 89-92, 79 Stat. 282 (July 27, 1965).

212

15 U.S.C. 57a(a)(2); see Part II.B (discussing the Mail Order Rule).

213

W. Va. v. EPA, 597 U.S. at 724.

214

See, e.g., FTC v. R.F. Keppel & Bro., 291 U.S. 304, 311 n.2, 314 (1934).

premised on the use of non-competes being an unfair method of competition, 215 and there is little

question that the Commission has the authority to determine that non-competes are unfair

methods of competition through adjudication. 216 Indeed, one commenter who asserted the rule

would violate the major questions doctrine expressly agreed that the Commission could

determine that a specific non-compete is an unfair method of competition through case-by-case

adjudication.217 The Commission is making the same kind of determination here through

rulemaking rather than adjudication.218 And because the rulemaking process allows all interested

parties a chance to weigh in, this process “may actually be fairer to parties than total reliance on

case-by-case adjudication.”219 This is thus not a situation where the agency’s action would

fundamentally change the nature of the regulatory scheme. Determining whether a practice is an

“unfair method of competition” under section 5 has been a core task of the Commission for more

than a century—and, indeed, goes to the heart of its mandate.

Additionally, non-competes have already been the subject of FTC scrutiny and

enforcement actions, so subjecting them to rulemaking is a more incremental—and thus less

significant—step than it would be for an agency to wade into an area not currently subject to its

enforcement authority. And the present rulemaking is consistent with both Congress’s intent for

the Commission and the Commission’s prior practice. Congress “empowered and directed” the

215

In those orders, the party agreed, inter alia, to cease and desist from enforcing or attempting to enforce existing

non-competes and from entering into or attempting to enter into new ones, and also agreed to provide notice to

affected employees that they are no longer subject to a non-compete. See Part I.B n.42-44 (citing recent Commission

investigations and consent orders involving non-competes).

216

To the extent that any commenters argued that the Commission lacked authority over the entire subject matter of

non-compete agreements, the Commission did not see any compelling explanation that an agreement not to compete

falls outside the meaning of a “method of competition.”

217

Comment of Int’l Ctr. For L. & Econs., FTC-2023-0007-20753, at 75-76.

218

Nat’l Petroleum Refiners Ass’n v. FTC, 482 F.2d 672 at 685 (D.C. Cir. 1973) (recognizing that the Commission

may “choose[]to elaborate” section 5’s “comprehensive statutory standards through rule-making or through case-bycase adjudication”).

219

Id. at 681; see generally Part IX.C.2 (discussing the value of rulemaking).

Commission “to prevent persons, partnerships, or corporations” within the Commission’s

jurisdiction “from using unfair methods of competition in or affecting commerce.” 220 Following

that directive, the Commission has previously used its section 6(g) authority to promulgate rules

that reach industries across the economy. For example, the Mail Order Rule placed restrictions

on any sale conducted by mail,221 and the Negative Options Rule requires certain disclosures for

some negative option plans. These rules—promulgated nearly 50 or more years ago—applied

across the industries within the FTC’s jurisdiction, yet no court has held that they exceeded the

Commission’s authority.222 Indeed, the Seventh Circuit upheld the Mail Order Rule as a valid

exercise of that authority. 223

Congress itself recognized that the Commission’s authority will sometimes affect firms

across the economy. Indeed, addressing unfair methods of competition and unfair and deceptive

practices across industries (other than the industries, activities, or entities Congress expressly

exempted) is the core of the Commission’s mandate—and the Commission has long pursued that

mandate through both rulemaking224 and adjudication.225 Congress imposed certain requirements

in section 22 on any amendment to a Commission rule promulgated under section 6 (or section

220

15 U.S.C. 45(a)(2).

Mail Order Merchandise, 40 FR 49492 (Oct. 22, 1975); see 16 CFR part 435.

222

See Part II.B (listing rules promulgated by the FTC exercising authority under sections 5 and 6(g)).

223

United States v. JS & A Grp., 716 F.2d 451, 454 (7th Cir. 1983).

224

See Part II.B.

225

The Commission’s adjudicatory power, like its rulemaking power, stretches across the national economy. For

instance, the Commission has found companies in a variety of industries participated in price-fixing conspiracies

that violated section 5 and ordered them to cease and desist from such practices following an adjudication. See, e.g.,

Eugene Dietzgen Co. v. FTC, 142 F.2d 321 (7th Cir. 1944) (scientific instruments); U.S. Maltsters Ass’n v. FTC,

152 F.2d 161 (7th Cir. 1945) (malt manufacturers); Keasbey & Mattison Co. v. FTC, 159 F.2d 940 (6th Cir. 1947)

(asbestos insulation); Allied Paper Mills v. FTC, 168 F.2d 600 (7th Cir. 1948) (book paper manufacturers); Bond

Crown & Cork. Co. v. FTC, 176 F.2d 974 (4th Cir. 1949) (bottle cap manufacturers). Price-fixing is just one

example. The Commission’s adjudicatory power also supported a cease-and-desist order concerning a food

manufacturer’s resale practices more than 100 years ago. FTC v. Beech-Nut Packing, 257 U.S. 441 (1922). And it

supported a cease-and-desist order within the past few years enjoining a pharmaceutical company from entering into

reverse payment settlement schemes. Impax Labs., Inc. v. FTC, 994 F.3d 484 (5th Cir. 2021). In the century

between, the Commission has found section 5 violations based on false advertising, monopoly maintenance,

exclusive dealing, and more in diverse sectors throughout the country.

221

18) that would have certain substantial effects on the national economy, the price of goods or

services, or regulated entities and consumers.226 Congress thus anticipated—and intended—that

the Commission’s rulemaking power carried the potential to affect the economy in considerable

ways, and Congress already considered and specified the necessary steps and checks to ensure

the Commission’s exercise of that power is appropriate. For all these reasons, the final rule does

not involve a “major question” as the Supreme Court has used that term.

Even if the final rule does present a major question, the final rule passes muster because

the FTC Act provides clear authorization for the Commission’s action. In cases involving major

questions, courts expect Congress to “speak clearly” if it wishes to assign the disputed power. 227

Congress did so when it “declared unlawful” in the FTC Act “[u]nfair methods of competition”

and empowered the Commission “to make rules and regulations for the purpose of carrying out

the provisions of th[e] Act.”228 Congress “[i]n large measure” left “the task of defining ‘unfair

methods of competition’ . . . to the Commission.”229 That is precisely what the Commission has

done here, for the reasons elaborated in detail in Part IV. Finally, there is no doubt that the

Commission has expertise in the field (competition) that it is regulating here. 230 For these

reasons, even if the final rule involves a major question, Congress has clearly delegated to the

Commission the authority to address that question.

226

15 U.S.C. 57b-3; see also Part II.B.

W. Va. v. EPA, 597 U.S. 697, 716, 723 (2002).

228

FTC Act of 1914, 38 Stat. at 721-22; see 15 U.S.C. 45(a), 46(g); see also Part II.A (discussing the Commission’s

rulemaking authority).

229

FTC v. Texaco, Inc., 393 U.S. 223, 225 (1968).

230

Cf. W. Va. v. EPA, 597 U.S. at 729 (noting the Court’s view that the EPA had traditionally lacked the expertise

needed to develop the rule at issue); Ala. Ass’n of Realtors v. HHS, 594 U.S. 758, at 764-65 (2021) (questioning the

link between the Center for Disease Control and an eviction moratorium); see also Part II.A (discussing Congress’s

creation of the Commission as an expert body); Parts IV.B and IV.C (discussing the rationale for the rule and

explaining the negative effects non-competes have on competition). The Commission also notes that through, inter

alia, the roundtables and enforcement actions described in Part I.B, and through this rulemaking process, it has

acquired expertise on non-competes specifically. The Commission further notes that non-competes are, inherently, a

method of competition.

227

3. Non-Delegation Doctrine

Some commenters also objected that Congress violated the non-delegation doctrine by

empowering the Commission to promulgate rules regulating unfair methods of competition. The

Commission disagrees. The non-delegation doctrine provides that “Congress generally cannot

delegate its legislative power to another Branch.” 231 But the Constitution does not “prevent

Congress from obtaining the assistance of its coordinate Branches.” 232 “So long as Congress

shall lay down by legislative act an intelligible principle to which the person or body authorized

to [exercise the delegated authority] is directed to conform, such legislative action is not a

forbidden delegation of legislative power.” 233 Applying this rule, the Supreme Court has “over

and over upheld even very broad delegations” including those directing agencies “to regulate in

‘the public interest,’…to set ‘fair and equitable’ prices and ‘just and reasonable’ rates,” and “to

issue whatever air quality standards are ‘requisite to protect the public health.’” 234 “The Supreme

Court has” also “explained that the general policy and boundaries of a delegation ‘need not be

tested in isolation’” and “[i]nstead, the statutory language may derive content from the ‘purpose

of the Act, its factual background and the statutory context in which they appear.’” 235

Here, Congress “declared unlawful” any “unfair methods of competition in or affecting

commerce” and “empowered and directed” the Commission “to prevent” entities within its

jurisdiction “from using unfair methods of competition.” 236 Congress also instructed the

231

Mistretta v. United States, 488 U.S. 361, 372 (1989).

Id.

233

Id. (alteration in original).

234

Gundy v. United States, 139 S. Ct. 2116, 2121 (2019) (citing Nat’l Broadcasting Co. v. United States, 319 U.S.

190, 216 (1943); N.Y. Cent. Secs. Corp. v. United States, 287 U.S. 12, 24 (1932); Yakus v. United States, 321 U.S.

414, 422 (1944); Fed. Power Comm’n v. Hope Natural Gas Co., 320 U.S. 591 (1944); and Whitman v. Am. Trucking

Ass’ns, 531 U.S. 457, 472 (2001)).

235

TOMAC, Taxpayers of Mich. Against Casinos v. Norton, 433 F.3d 852, 866 (D.C. Cir. 2006) (quoting Am. Power

& Light Co. v. SEC, 329 U.S. 90, 104 (1946)).

236

15 U.S.C. 45(a)(1)-(2).

232

Commission to “make rules and regulations for the purpose of carrying out the provisions” of the

FTC Act.237 Congress’s stated purpose and policy in section 5 provides the Commission with an

intelligible principle to guide its section 6(g) rulemaking authority. 238

Were there any doubt, the Supreme Court has laid it to rest in A.L.A. Schechter Poultry

Corp. v. United States.239 Schechter Poultry marked one of two occasions “in this country’s

history” that the Supreme Court “found a delegation excessive,” and “in each case . . . Congress

had failed to articulate any policy or standard to confine discretion.” 240 The Court offered the

FTC Act, however, as a counterexample of proper Congressional delegation. The Court

recognized that the phrase “unfair methods of competition” in the FTC Act was “an expression

new in the law” without “precise definition,” but that Congress had empowered the Commission

to “determine[] in particular instances, upon evidence, in the light of particular competitive

conditions and of what is found to be a specific and substantial public interest” whether a method

of competition is unfair.241 The FTC Act stood in contrast, the Court explained, to the National

Industrial Recovery Act (“NIRA”), which the Court held included an unconstitutional

delegation.242

The Commission recognizes that Schechter Poultry approved of the FTC Act’s

adjudicatory process for determining unfair methods of competition without commenting on the

Act’s rulemaking provision. But the “unfair method of competition” authority the Court

237

15 U.S.C. 46(g).

As the D.C. Circuit noted in Nat’l Petroleum Refiners Ass’n v. FTC, “the Supreme Court has ruled that the

powers specified in Section 6 do not stand isolated from the Commission’s enforcement and law applying role laid

out in Section 5.” 482 F.2d 672, 677 (D.C. Cir. 1973) (citing United States v. Morton Salt Co., 338 U.S. 632

(1950)).

239

A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935).

240

Gundy, 588 U.S. at 2129 (internal quotation omitted); cf. also Panama Refin. Co. v. Ryan, 293 U.S. 388 (1935)

(finding impermissible delegation).

241

Schechter Poultry, 295 U.S. at 532-33.

242

Id. at 529-42.

238

approvingly cited in Schechter Poultry is the same intelligible principle the Commission is

applying in this rulemaking. And just as the adjudication process provides for a “formal

complaint, for notice and hearing, for appropriate findings of fact supported by adequate

evidence, and for judicial review,”243 the APA rulemaking process provides for a public notice of

proposed rulemaking, the opportunity to “submi[t] . . . written data, views, or arguments,”

agency consideration of those comments, and judicial review. 244 If Congress may permissibly

delegate the authority to determine through adjudication whether a given practice is an unfair

method of competition, it may also permit the Commission to do the same through

rulemaking.245

For these reasons, Commission concludes that its authority to promulgate rules regulating

unfair methods of competition is not an impermissible delegation of legislative authority.

4. Other Challenges to the Commission’s Authority

Finally, a handful of comments raised other, miscellaneous arguments contending that the

Commission lacks authority to promulgate the rule. The Commission has reviewed and

considered these comments and concludes they do not undercut the Commission’s authority to

promulgate the final rule.

The Commission received several comments about the Commerce Clause. That clause

allows Congress “to regulate Commerce with foreign Nations, and among the several States, and

with the Indian tribes.” 246 Consistent with that clause, the FTC Act empowers the Commission

243

Id. at 533.

5 U.S.C. 553, 702.

245

Nat’l Petroleum Refiners Ass’n v. FTC, 482 F.2d 672, 685 (D.C. Cir. 1973); cf. SEC v. Chenery Corp., 332 U.S.

194, 202-03 (1947) (“Some principles must await their own development, while others must be adjusted to meet

particular, unforeseeable situations. In performing its important functions in these respects, therefore, an

administrative agency must be equipped to act either by general rule or by individual order. To insist upon one form

of action to the exclusion of the other is to exalt form over necessity.”).

246

U.S. Const. art. I, sec. 8, cl. 3.

244

to prevent unfair methods of competition “in or affecting commerce,” which the Act also defines

consistently with the Constitution.247 One commenter wrote to support the rule and emphasized

that non-competes restrict the free flow of interstate commerce. Others argued that the proposed

rule would violate the Commerce Clause by regulating local commerce. The Commission has

considered these comments and concludes that it may promulgate the final rule consistent with

the Commerce Clause. The final rule extends to the full extent of the FTC’s jurisdiction, which

in turn extends no further than the Commerce Clause permits. As the Supreme Court has

explained, the phrase “in or affecting commerce” in section 5 of the FTC Act is “coextensive

with the constitutional power of Congress under the Commerce Clause.” 248 In this final rule, the

Commission finds that the use of non-competes by employers substantially affects commerce as

that term is defined in the FTC Act. The final rule is therefore a lawful exercise of Congress’s

delegated power.249

Relatedly, one commenter objected that the rule would violate the Tenth Amendment,

which provides that “[t]he powers not delegated to the United States by the Constitution, nor

prohibited by it to the States, are reserved to the States respectively, or to the people.” 250 But as

just explained, the Constitution grants Congress the power to regulate interstate commerce, and

pursuant to that power Congress granted the Commission authority to prevent unfair methods of

competition in or affecting commerce. The Commission is not intruding on any power reserved

to the States.

247

15 U.S.C. 44, 45(a)(1).

United States v. Am. Bldg. Maintenance Indus., 422 U.S. 271, 277, n.6 (1975).

249

See Nat’l Fed’n of Indep. Bus. v. Sebelius, 567 U.S. 519, 549 (2012) (“Congress’s power” under the Commerce

Clause “is not limited to regulation of an activity that by itself substantially affects interstate commerce, but also

extends to activities that do so only when aggregated with similar activities of others.”); see also Part I.B.2

(discussing prevalence of non-competes) and Part IX.C.2 (addressing the need for a nationwide regulation

prohibiting non-competes).

250

U.S. Const. amend. X.

248

Some commenters objected that the rule infringes on the right to contract. One of these

commenters acknowledged that the Constitution’s Contracts Clause does not apply to the Federal

government.251 Regardless, even assuming that the Constitution protects a right to contract that

can be asserted against a Federal regulation, that right sounds in substantive due process, and the

Commission must offer only a rational basis for the rule. 252 As relevant here, the final rule

advances the Commission’s congressional mandate to prevent unfair methods of competition and

will promote competition and further innovation among its many benefits. 253 There is a rational

relationship between regulating non-competes and these legitimate government purposes.

One commenter argued that the proposed rule was unconstitutionally vague. This

commenter’s objection focused on the proposed provision governing de facto non-competes. The

Commission is not adopting that proposed language in the final rule. Instead, the Commission

has clarified the scope of its definition of non-compete clause. Whether a specific clause falls

within the scope of the final rule will necessarily depend on the precise language of the

agreement at issue, but the text of the final rule provides regulated parties with sufficient notice

of what the law demands to satisfy any due process vagueness concerns.

D. Compliance with the Administrative Procedure Act (“APA”)

Some commenters also contended that the Commission has not complied with the

Administrative Procedure Act (“APA”). 254 At a high level, the APA requires prior public notice,

251

See U.S. Const. art. I, sec. 10, cl. 1.

See, e.g., L & H Sanitation, Inc. v. Lake City Sanitation, Inc., 769 F.2d 517, 522 (8th Cir. 1985).

253

See Parts IV.B and IV.C, Part X.F.6.

254

This includes, for example, a commenter who argued that that the NPRM was not the product of reasoned

decision-making, asserting that the Commission had failed to consider key aspects of the rule or misconstrued

evidence; commenters who argued that the rule was arbitrary and capricious for failing to consider less restrictive

alternatives; commenters who argued that the NPRM failed to consider State policy or that the Commission would

be acting arbitrarily by not passing a uniform rule; and commenters who argued that the Commission had failed to

consider reliance interests. The Commission has addressed the concerns underlying these comments in other parts of

this statement of basis and purpose.

252

an opportunity to comment, and consideration of those comments before an agency can

promulgate a legislative rule.255 The Commission has engaged in that process, which has led to

this final rule and the accompanying explanation. Some comments failed to recognize that the

NPRM was a preliminary step that did not fossilize the Commission’s consideration of

arguments or weighing of evidence. Moreover, the APA “limits causes of action under the APA

to final agency action.”256 It is this final rule, not the NPRM, that constitutes final agency action.

Before adopting this final rule, the Commission reviewed and considered all comments received.

In many instances, the Commission has made changes relative to the proposed rule to address

concerns that commenters raised. In all cases, however, the Commission has complied with the

APA.

E. The Commission’s Jurisdiction Under the FTC Act

The Commission’s jurisdiction derives from the FTC Act. Employers that are outside the

Commission’s jurisdiction under the FTC Act are not subject to the final rule. The Commission

clarifies in the definition of person in § 910.1, that the rule applies only to those within the

Commission’s jurisdiction. Some commenters sought a more detailed accounting of the

Commission’s jurisdiction under the FTC Act. The Commission addresses those comments in

this section. Comments seeking an exclusion for entities within the Commission’s jurisdiction

are addressed in Parts V.D.3 and V.D.4.

1. Generally

Certain entities that would otherwise be subject to the final rule may fall outside the

FTC’s jurisdiction under the FTC Act. The FTC Act exempts certain entities or activities from

255

5 U.S.C. 553; see also Elec. Priv. Info. Ctr. v. DHS, 653 F.3d 1, 5 (D.C. Cir. 2011) (APA “generally require[s] an

agency to publish notice of a proposed rule in the Federal Register and to solicit and consider public comments upon

its proposal.”).

256

Trudeau v. FTC, 456 F.3d 178, 188-89 (D.C. Cir. 2006) (internal quotation marks omitted); see 5 U.S.C. 704.

the Commission’s enforcement jurisdiction, which otherwise applies to “persons, partnerships, or

corporations.”257 For example, the Act exempts “banks” and “persons, partnerships, or

corporations insofar as they are subject to the Packers and Stockyards Act.” 258 And the Act

excludes from its definition of “corporation” any entity that is not “organized to carry on

business for its own profit or that of its members.” 259 The NPRM explained that, where an

employer is exempt from coverage under the FTC Act, the employer would not be subject to the

rule.260 The NPRM also explained that State and local government entities—as well as some

private entities—may not be subject to the rule when engaging in activity protected by the State

action doctrine.261 Some commenters stated that the Commission should restate, clarify,

interpret, or limit the reach of its authority under the FTC Act in the rule.

In response, the Commission explains that the final rule extends to covered persons that

are within the Commission’s jurisdiction. The Commission does not believe restating or further

specifying each jurisdictional limit in the final rule’s text is necessary; the FTC Act defines the

limits of the Commission’s jurisdiction and those limits govern this rule. Moreover, the

Commission cannot here provide guidance that applies to every fact and circumstance. Whether

an entity falls under the Commission’s jurisdiction can be a fact-specific determination. An

attempt by the Commission to capture all potential interpretations of the laws governing

exclusions from the FTC Act may create confusion rather than clarity. In response to

commenters who asked the Commission to affirm that the final rule does not bind agencies that

regulate firms outside the Commission’s jurisdiction under the FTC Act, the Commission affirms

257

15 U.S.C. 45(a)(2); see also FTC v. AT&T Mobility LLC, 883 F.3d 848, 853-56 (9th Cir. 2018) (en banc).

15 U.S.C. 45(a)(2).

259

15 U.S.C. 44.

260

NPRM at 3510.

261

Id. (citing Parker v. Brown, 317 U.S. 341, 350-51 (1943)).

258

that the Commission applies the final rule only to entities that are covered by the FTC Act. 262

A State government agency commenter suggested that the Commission explicitly exempt

State and local governments from the rule. The commenter pointed to conflicts-of-interest

policies used by some State agencies to preclude former employees from working on related

projects or jobs in the private sector, which the commenter stated do not implicate the policy

concerns the FTC seeks to address in the rule. The commenter also noted the complexity of when

the Commission’s jurisdiction might extend to State and local governments. The Commission

clarifies in the definition of “person” in § 910.1 that the final rule applies only to a legal entity

within the Commission’s jurisdiction. The Commission also explains in Part III.E that the

definition of “person” is coextensive with the Commission’s authority to issue civil investigative

demands. Nothing in this rule changes the extent of the Commission’s jurisdiction over State and

local governments. The Commission declines to specify all circumstances under which a

governmental entity or quasi-governmental entity would or would not be subject to the

Commission’s jurisdiction and, thus, this final rule. In any event, with respect to the government

ethics policies referenced by the commenter, to the extent the commenter is referring to

traditional “cooling off” policies that preclude former government employees from working on

discrete, specific projects that fell within the scope of their former official governmental position

to address ethical concerns, such policies would not meet the definition of “non-compete clause”

in § 910.1 because they do not prohibit, penalize or function to prevent a worker from switching

jobs or starting a new business.

262

For example, a few community bank commenters expressed concern that because the Federal Deposit Insurance

Corporation (“FDIC”) can enforce the FTC Act against banks, the rule could be applied by the FDIC to banks. The

FTC Act is the Commission’s organic statute, and interpretive authority of the FTC Act rests with the Commission.

Whether other agencies enforce section 5 or apply the rule to entities under their own jurisdiction is a question for

those agencies. At the same time, as discussed in this Part II.E.1, the Commission applies and enforces the rule only

to the extent of its jurisdiction.

2. Jurisdiction Over Entities Claiming Nonprofit Status Under the FTC Act or the

Internal Revenue Code

Commenters from the healthcare industry argued that the Commission should restate,

clarify, interpret, or limit the reach of its authority under the FTC Act specifically for the

healthcare industry. They pointed to the prevalence of healthcare organizations registered under

section 501(c) of the Internal Revenue Code claiming tax-exempt status as nonprofits.

Commenters contended that these organizations are categorically outside the Commission’s

authority under the FTC Act. In fact, under existing law, these organizations are not categorically

beyond the Commission’s jurisdiction. To dispel this misunderstanding, the Commission

summarizes the existing law pertaining to its jurisdiction over non-profits.

a. Comments Received

Business and trade industry commenters from the healthcare industry, including, for

example, hospitals, physician practices, and surgery centers, focused on whether the Commission

has jurisdiction over nonprofit organizations registered under section 501(c)(3) of the Internal

Revenue Code in light of the FTC Act’s definition of “corporation.” Section 501(c)(3) exempts

from taxation certain religious, charitable, scientific, educational, and other corporations, “no

part of the net earnings of which inure[] to the benefit of any private shareholder or

individual.”263 An entity is a “corporation” under the FTC Act only if it is “organized to carry on

business for its own profit or that of its members.” 264 Several industry commenters argued that

the Commission does not have jurisdiction over entities that claim tax-exempt status as

nonprofits because they are, by definition, not “organized to carry on business for [their] own

263

26 U.S.C. 501(c)(3). Other, less frequently invoked paragraphs of section 501(c) also identify corporations and

organizations that qualify for tax-exempt status. The distinctions between these entities and those claiming taxexempt status under 501(c)(3) are analyzed under the same standard.

264

15 U.S.C. 44.

profit or that of [their] members.” The Commission presumes that commenters self-identifying

as or referring to “nonprofits,” “not-for-profits,” or other similar terms without further

explanation are referencing entities claiming tax-exempt status under section 501(c)(3) or other

provisions of the Internal Revenue Code. Some commenters contended that, to avoid confusion,

the rule should state that it does not apply to entities claiming tax-exempt status as non-profits.

At least one commenter stated that the Commission should clarify whether and how the rule

would apply to healthcare entities claiming tax-exempt status as nonprofits and then reopen the

comment period. One commenter sought clarification on how ownership interest in a for-profit

entity or joint venture with a for-profit partner by an entity that claims tax-exempt status as a

nonprofit would affect the rule’s applicability.

b. The Final Rule

The final rule applies to the full scope of the Commission’s jurisdiction. Many of the

comments about nonprofits erroneously assume that the FTC’s jurisdiction does not capture any

entity claiming tax-exempt status as a nonprofit. Given these comments, the Commission

summarizes Commission precedent and judicial decisions construing the scope of the

Commission’s jurisdiction as it relates to entities that claim tax-exempt status as nonprofits and

to other entities that may or may not be organized to carry on business for their own profit or the

profit of their members.

Congress empowered the Commission to “prevent persons, partnerships, or corporations”

from engaging in unfair methods of competition.265 To fall within the definition of “corporation”

under the FTC Act, an entity must be “organized to carry on business for its own profit or that of

its members.”266 These FTC Act provisions, taken together, have been interpreted in

265

266

15 U.S.C. 45(a)(2). The Commission focuses on coverage as “corporations” in this section.

15 U.S.C. 44.

Commission precedent267 and judicial decisions268 to mean that the Commission lacks

jurisdiction to prevent section 5 violations by a corporation not organized to carry on business

for its own profit or that of its members.

The Commission stresses, however, that both judicial decisions and Commission

precedent recognize that not all entities claiming tax-exempt status as nonprofits fall outside the

Commission’s jurisdiction. As the Eighth Circuit has explained, “Congress took pains in drafting

§ 4 [15 U.S.C. 44] to authorize the Commission to regulate so-called nonprofit corporations,

associations and all other entities if they are in fact profit-making enterprises.” 269 The

Commission applies a two-part test to determine whether a corporation is organized for profit

and thus within the Commission’s jurisdiction. As the Commission has explained, “[t]he not-for

profit jurisdictional exemption under Section 4 requires both that there be an adequate nexus

between an organization’s activities and its alleged public purposes and that its net proceeds be

properly devoted to recognized public, rather than private, interests.” 270 Alternatively stated, the

Commission looks to both “the source of the income, i.e., to whether the corporation is organized

for and actually engaged in business for only charitable purposes, and to the destination of the

income, i.e., to whether either the corporation or its members derive a profit.”271 This test reflects

the Eighth Circuit’s analysis in Community Blood Bank of Kansas City Area, Inc. v. FTC and

“the analogous body of federal law which governs treatment of not-for-profit organizations under

the Internal Revenue Code.”272 Under this test, a corporation’s “tax-exempt status is certainly

267

In the Matter of Coll. Football Ass’n, 117 F.T.C. 971, 992-999 (1990).

California Dental Ass’n v. FTC, 526 U.S. 756, 766 (1999); Cmty. Blood Bank of Kansas City Area, Inc. v. FTC,

405 F.2d 1011, 1016 (8th Cir. 1969); FTC v. Univ. Health, Inc., 938 F.2d 1206, 1214 (11th Cir. 1991).

269

Blood Bank, 405 F.2d at 1018; see also, e.g., FTC v. Nat’l Comm’n on Egg Nutrition, 517 F.2d 485, 488 (7th Cir.

1975).

270

Coll. Football Ass’n, 117 F.T.C. at 998.

271

Id. at 994 (internal quotation and citation omitted).

272

Id. at 994.

268

one factor to be considered,” but that status “does not obviate the relevance of further inquiry

into a [corporation’s] operations and goals.” 273

Merely claiming tax-exempt status in tax filings is not dispositive. At the same time, if

the Internal Revenue Service (“IRS”) concludes that an entity does not qualify for tax-exempt

status, such a finding would be meaningful to the Commission’s analysis of whether the same

entity is a corporation under the FTC Act. Administrative proceedings and judicial decisions

involving the Commission or the IRS274 have identified numerous private benefits that, if

offered, could render an entity a corporation organized for its own profit or that of its members

under the FTC Act, bringing it within the Commission’s jurisdiction. For instance, the

Commission has exercised jurisdiction in a section 5 enforcement action over a physicianhospital organization because the organization engaged in business on behalf of for-profit

physician members.275 That organization, which consisted of over 100 private physicians and one

non-profit hospital, claimed tax-exempt status as a nonprofit. 276 Similarly, the Commission has

exercised jurisdiction over an independent physician association claiming tax-exempt status as a

nonprofit. The association consisted of private, independent physicians and private, small group

practices.277 That association was organized for the pecuniary benefit of its for-profit members

because it “contract[ed] with payers, on behalf of its [for-profit] physician members, for the

273

In the Matter of the Am. Med. Assoc., 94 F.T.C. 701, 1979 WL 199033, at *221 (FTC Oct. 12, 1979).

The Commission offers examples of decisions from the IRS and Tax Court as examples that the Commission

may deem persuasive. Although “[r]ulings of the Internal Revenue Services are not binding upon the Commission,”

the Commission has recognized that “a determination by another Federal agency that a respondent is or is not

organized and operated exclusively for eleemosynary purposes should not be disregarded.” Am. Med. Assoc., 1979

WL 199033 at *221.

275

In the Matter of Preferred Health Servs., Inc., FTC No. 41-0099, 2005 WL 593181, at *1 (Mar. 2, 2005).

276

Id. at *1.

277

In the Matter of Boulder Valley Individual Prac. Assoc., 149 F.T.C. 1147, 2010 WL 9434809, at *2 (Apr. 2,

2010).

274

provision of physician services for a fee.” 278 Under IRS precedent in the context of purportedly

tax-exempt nonprofit hospitals and other related entities that partner with for-profit entities,

where the purportedly nonprofit entity “has ceded effective control” to a for-profit partner,

“conferring impermissible private benefit,” the entity loses tax-exempt status. 279 The IRS has

also rejected claims of nonprofit tax-exempt status for entities that pay unreasonable

compensation, including percentage-based compensation, to founders, board members, their

families, or other insiders.280

These examples are illustrative. As has been the case for decades, under Commission

precedent and judicial decisions construing the scope of the Commission’s jurisdiction, any

entity satisfying the two-prong test falls within the Commission’s jurisdiction. Such entities

would thus be bound by the final rule. 281

F. The Legal Standard for Unfair Methods of Competition Under Section 5

In section 5 of the FTC Act, “unfair methods of competition in or affecting commerce”

are “declared unlawful.”282 In enacting section 5, Congress intentionally did not mirror either the

common law or the text or judicial interpretations of the Sherman Act, but instead adopted this

278

Boulder Valley, 2010 WL 9434809, at *2. The Commission has similarly exercised jurisdiction where an entity

claiming nonprofit tax-exempt status provides pecuniary benefit to for-profit entities or individuals. See, e.g., In the

Matter of Mem’l Hermann Health Network Providers, 137 F.T.C. 90, 92 (2004); Preferred Health, 2005 WL

593181, at *1-*2; Advoc. Health Partners, F.T.C. No. 31-0021, 2007 WL 643035, at *3-*4 (Feb. 7, 2007); Conn.

Chiropractic Ass’n, F.T.C. No. 71-0074, 2008 WL 625339, at *2 (Mar. 5, 2008); Am. Med. Ass’n v. FTC, 638 F.2d

443 (2d Cir. 1980), aff’d, 455 U.S. 676 (1982).

279

Redlands Surgical Servs. v. Comm’r, 242 F.3d 904, 904-05 (9th Cir. 2001); see also St. David’s Health Care Sys.

v. United States, 349 F.3d 232, 239 (5th Cir. 2003).

280

See Fam. Tr. of Mass., Inc. v. United States, 892 F. Supp. 2d 149, 155-156 (D.D.C. 2012); I.R.S. G.C.M. 39,674

(Oct. 23, 1987); Bubbling Well Church of Universal Love, Inc. v. Comm’r, No. 5717-79X, 1980 WL 4453 (T.C.

June 9, 1980) (“[E]xcessive payments made purportedly as compensation constitute benefit inurement in

contravention of section 501(c)(3).”).

281

The Commission cannot predict precisely how many entities claiming nonprofit tax-exempt status may be subject

to the final rule. The Commission finds that the benefits of the final rule justify implementing it no matter how many

nonprofit entities claiming tax-exempt status it ultimately reaches—including under the unlikely assumption that it

does not reach any of them.

282

15 U.S.C. 45(a)(1).

new term.283 As the Supreme Court has confirmed, this different term reflects a distinct

standard.284 Under section 5, the Commission assesses two elements: (1) whether the conduct is a

method of competition, as opposed to a condition of the marketplace, and (2) whether it is unfair,

meaning that it goes beyond competition on the merits. The latter inquiry has two components:

(a) whether the conduct has indicia of unfairness and (b) whether the conduct tends to negatively

affect competitive conditions. These two components are weighed according to a sliding scale.

Indicia of unfairness include the extent to which the conduct may be coercive,

exploitative, collusive, abusive, deceptive, predatory, or involve the use of economic power of a

similar nature.285 Indicia of unfairness may also be present if the conduct is otherwise restrictive

or exclusionary, depending on the circumstances, such as the nature of the commercial setting

and the current and potential future effects of the conduct. 286 Notably, section 5 does not limit

283

The Clayton Antitrust Act (38 Stat. 730, ch. 323, P.L. 63-212, Oct. 15, 1914) was signed into law weeks after the

FTC Act of 1914, 38 Stat. 717.

284

See FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 454 (1986); FTC v. Sperry & Hutchinson, 405 U.S. 233, 243-44

(1972); FTC v. Brown Shoe Co., 384 U.S. 316, 321 (1966); FTC v. Motion Picture Advert. Serv., 344 U.S. 392, 39495 (1953); FTC v. R.F. Keppel & Bro., 291 U.S. 304, 309-10 (1934). While some commenters argued the

Commission should apply the rule of reason in this rule, as outlined in Parts II.A, II.B, II.C, and II.F, neither the text

of section 5, the Supreme Court and other courts’ interpretation of section 5, nor the legislative history support the

conclusion that the Commission should apply the rule of reason to determine whether conduct violates section 5 as

an unfair method of competition. The Commission outlines the legal standard for finding certain uses of noncompetes to be unfair methods of competition in the final rule in this Part II.F.

285

See e.g., Sperry & Hutchinson Co., 405 U.S. at 243 (holding section 5 reaches conduct shown to exploit

consumers, citing R.F. Keppel & Bro., 291 U.S. at 313); Atl. Refin. Co. v. FTC, 381 U.S. 357, 369 (1965) (holding

that the “utilization of economic power in one market to curtail competition in another . . . . bolstered by actual

threats and coercive practices” was an unfair method of competition); FTC v. Texaco, 393 U.S. 223, 228-29 (1968)

(finding that use of “dominant economic power . . . in a manner which tended to foreclose competition” is an unfair

method of competition); E.I. du Pont de Nemours v. FTC (Ethyl), 729 F.2d 128, 137, 140 (2d Cir. 1984) (finding

that unfair methods of competition includes practices that are “collusive, coercive, predatory, restrictive or deceitful”

as well as “exclusionary”).

286

See, e.g., Motion Picture Advert. Serv. Co., 344 U.S. at 395-96; Luria Bros. & Co. v. FTC, 389 F.2d 847, 860-61

(3d Cir. 1968). As the Supreme Court has made clear, the inquiry into the nature of the commercial setting does not,

however, require market definition or proof of market power. See, e.g., Atl. Refin. Co., 381 U.S. at 371 (finding it

“unnecessary to embark upon a full scale economic analysis of competitive effect”). On November 10, 2022, the

Commission issued a policy statement describing the key principles of general applicability concerning whether

conduct is an unfair method of competition under section 5. FTC, Policy Statement Regarding the Scope of Unfair

Methods of Competition Under Section 5 of the Federal Trade Commission Act (Nov. 10, 2022) (hereinafter “FTC

Policy Statement”). The FTC Policy Statement cites a number of cases explaining that section 5 does not require

market definition or proof of market power. Id. at 10.

indicia of unfairness to conduct that benefits one or more firms and necessarily disadvantages

others. Instead, restrictive and exclusionary conduct may also be unlawful where it benefits

specific firms while tending to negatively affect competitive conditions. 287

The second prong, whether conduct tends to negatively affect competitive conditions,

focuses on the nature and tendency of the conduct. It does not turn on whether the conduct

directly caused actual harm in the specific instance at issue and therefore does not require a

detailed economic analysis or current anticompetitive effects. 288 Instead, the inquiry examines

whether the conduct has a tendency to negatively affect competitive conditions, including by

raising prices, reducing output, limiting choice, lowering quality, reducing innovation, impairing

or excluding other market participants, reducing the likelihood of potential or nascent

competition, reducing labor mobility, suppressing worker compensation or degrading working

conditions for workers. These concerns may arise when the conduct is examined in the aggregate

along with the conduct of others engaging in the same or similar conduct. 289 Section 5 does not

require a separate showing of market power or market definition. 290 Nor does section 5 import

287

See, e.g., Brown Shoe Co., 384 U.S. at 320 (“Thus the question . . . is whether the Federal Trade Commission can

declare it to be an unfair practice for Brown, the second largest manufacturer of shoes in the Nation, to pay a

valuable consideration to hundreds of retail shoe purchasers in order to secure a contractual promise from them that

they will deal primarily with Brown and will not purchase conflicting lines of shoes from Brown’s competitors. We

hold that the Commission has power to find, on the record here, such an anticompetitive practice unfair . . . .”)

288

Atl. Refin. Co., 381 U.S. at 371 (It is “unnecessary to embark upon a full scale economic analysis of competitive

effect.”); Texaco, 393 U.S. at 230 (“It is enough that the Commission found that the practice in question unfairly

burdened competition for a not insignificant volume of commerce.”); Union Circulation Co. v. FTC, 241 F.2d 652,

657 (2d Cir. 1957) (“The agreements should be struck down if their reasonable tendency, as distinguished from

actual past effect, is to injure or obstruct competition. Under the Federal Trade Commission Act, industry

agreements and practices have been enjoined without an actual showing of injury to competition . . . .”). See also

Sperry & Hutchinson Co., 405 U.S. at 244 (“[U]nfair competitive practices [are] not limited to those likely to have

anticompetitive consequences after the manner of the antitrust laws.”); Ethyl, 729 F.2d at 138 (finding that evidence

of actual harm is not required); In re Coca-Cola Co., 117 F.T.C. 795, 915 n.25 (1994) (rejecting argument that

section 5 violation requires showing of “anticompetitive effects”).

289

Motion Picture Advert. Serv. Co., 344 U.S. at 395; Union Circulation Co., 241 F.2d at 658 (“The tendency of the

‘no-switching’ agreements is to discourage labor mobility, and thereby the magazine-selling industry may well

become static in its composition to the obvious advantage of the large, well-established signatory agencies and to the

disadvantage of infant organizations.”).

290

Atl. Refin. Co., 381 U.S. at 371; Texaco, 393 U.S. at 230; L.G. Balfour Co. v. FTC, 442 F.2d 1, 19-20 (7th Cir.

the rule-of-reason analysis applied under other antitrust laws, including in some Sherman Act

cases.291

The Commission weighs the two elements—indicia of unfairness and tendency to

negatively affect competitive conditions—on a sliding scale. Where the indicia of unfairness are

clear, conduct may be an unfair method of competition with only a limited showing of a

tendency to negatively affect competitive conditions.292 For example, conduct that is coercive

and exploitative evinces facial unfairness and weighs heavily as clear indicia of unfairness. 293

Where indicia of unfairness are less clear, conduct may still violate section 5 where it tends to

negatively affect competitive conditions, but a stronger showing of such tendency is required.

In many cases the Commission (and courts) have held conduct to constitute an unfair

method of competition by pointing to clear indicia of unfairness, including coercive or

exploitative conduct, without conducting a detailed economic analysis of its effects. In Atlantic

Refining Co. v. FTC and FTC v. Texaco, Inc., the Supreme Court held that the Commission

established an unfair method of competition where an oil company used its economic power over

its gas stations to coerce them into buying certain tires, batteries, or accessories only from firms

that paid the oil company a commission.294 The Court determined in Atlantic Refining that “a

full-scale economic analysis of competitive effect” was not required and the Commission needed

only to show that the conduct burdened “a not insubstantial portion of commerce.” 295 The Court

1971) (no proof of foreclosure of a relevant market necessary in an exclusive dealing contract case under section 5

(citing Brown Shoe)).

291

See Part II.A.

292

See, e.g., Ethyl, 729 F.2d at 137-39; FTC Policy Statement, supra note 286, at 9.

293

See e.g., Sperry & Hutchinson Co., 405 U.S. at 243; Ethyl, 729 F.2d at 139, 140 (finding that unfair methods of

competition include practices that are “collusive, coercive, predatory, restrictive, or deceitful” as well as

“exclusionary”); FTC Policy Statement, supra note 286, at 7, 9.

294

Atl. Refin. Co., 381 U.S. at 369-70; Texaco, 393 U.S. at 228-29.

295

Atl. Refin. Co., 381 U.S. at 371. See also Texaco, 393 U.S. at 230 (finding that the practice unfairly burdened

competition for a not insignificant volume of commerce); FTC v. R.F. Keppel & Bro., 291 U.S. 304, 309 (1934) (“A

reiterated this standard in Texaco holding that, even though the impact was less harmful than the

conduct in Atlantic Refining, “the anticompetitive tendencies of [the challenged] system are

clear, and . . . the Commission was properly fulfilling the task that Congress assigned it in

halting this practice in its incipiency.”296 As the Court observed, “[t]he Commission is not

required to show that a practice it condemns has totally eliminated competition.” 297 In FTC v.

R.F. Keppel & Brother, Inc., the Supreme Court held that the Commission established an unfair

method of competition where a manufacturer exploited the inability of children to protect

themselves in the marketplace by marketing inferior goods to them through use of a gambling

scheme.298 The Court considered the extent of the practice and concluded “[the practice] is

successful in diverting trade from competitors” without engaging in a full-scale economic

analysis.299

In other cases, the Commission (and courts) have held exclusionary or restrictive conduct

was an unfair method of competition based on evidence of the conduct’s tendency to negatively

affect competitive conditions without focusing on the indicia of unfairness, including whether

the conduct is coercive or exploitative. But an evidentiary showing or detailed economic analysis

that such conduct generated actual anticompetitive effects or would do so in the future still was

not required. For example, in Union Circulation Company v. FTC, the Second Circuit held the

Commission established an unfair method of competition where a group of door-to-door

subscription solicitation agencies agreed not to hire workers who were previously employed by

practice so widespread and so far reaching in its consequences is of public concern if in other respects within the

purview of the statute.”).

296

Texaco, 393 U.S. at 230 (further noting that “[i]t is enough that the Commission found that the practice in

question unfairly burdened competition for a not insignificant volume of commerce.”).

297

Id. at 230. See also Shell Oil Co. v. FTC, 360 F.2d 470, 487 (5th Cir. 1966) (“A man operating a gas station is

bound to be overawed by the great corporation that is his supplier, his banker, and his landlord.”).

298

291 U.S. 304, 313.

299

291 U.S. at 308-09.

another signatory agency.300 The court looked to whether the “reasonably foreseeable effect” of

the agencies’ conduct would be to “impair or diminish competition between existing

[competitors]” or prevent potential new rivals. 301 In finding that the conduct was an unfair

method of competition, the court concluded that “[t]he tendency of the . . . agreements is to

discourage labor mobility, and thereby the magazine-selling industry may well become static in

its composition to the obvious advantage of the large, well established signatory agencies and to

the disadvantage of infant organizations.”302 In FTC v. Brown Shoe Co., the Supreme Court held

that an exclusive dealing arrangement under which the Brown Shoe Company offered shoe

retailers “a valuable consideration . . . to secure a contractual promise from them that they will

deal primarily with Brown and will not purchase conflicting lines of shoes from Brown’s

competitors” violated section 5 consistent with the Commission’s authority “to arrest trade

restraints in their incipiency.”303 Of course, evidence of actual adverse effects on competition

meets the requirement to show a tendency to negatively affect competitive conditions. For

example, in FTC v. Motion Picture Advertising Service Co., the Supreme Court held that an

exclusive dealing arrangement violated section 5 where there was “substantial evidence” that the

contracts “unreasonably restrain competition.”304

300

241 F.2d 652, 655 (2d Cir. 1957).

Id. at 658. Notably, the court also considered facially coercive conduct by which the door-to-door subscription

agencies coerced magazine publishers into not doing business with one of their competitors because the competitor

hired their former workers. Id. at 655-56. The court upheld the Commission’s order concluding this conduct was an

unfair method of competition under section 5. The court did not conduct any related economic analysis and simply

concluded that the “illegal scheme of coercion . . . is clearly unjustified.” Id.

302

Id. at 658; see also Nichols v. Spencer Intern. Press, Inc., 371 F.2d 332, 334 (7th Cir. 1967) (“Granting that the

antitrust laws were not enacted for the purpose of preserving freedom in the labor market, nor

of regulating employment practices as such, nevertheless it seems clear that agreements among supposed

competitors not to employ each other’s employees not only restrict freedom to enter into employment relationships,

but may also, depending upon the circumstances, impair full and free competition in the supply of a service or

commodity to the public.”)

303

FTC v. Brown Shoe Co., 384 U.S. 316, 320, 322 (1966).

304

FTC v. Motion Picture Advert. Serv. Co., 344 U.S. 392, 395-96 (1953); see also L.G. Balfour Co. v. FTC, 442

F.2d 1, 14 (7th Cir. 1971) (holding that a firm’s exclusive dealing contracts violated section 5 where such contracts

were ‘anti-competitive’”).

301

Respondents in unfair method of competition cases sometimes assert purported

justifications as an affirmative defense. Some courts have declined to consider justifications

altogether. However, where defendants raise justifications as an affirmative defense, the

Commission and courts have consistently held that pecuniary benefit to the party responsible for

the conduct in question is not cognizable as a justification. 305 Additionally, to the extent

justifications are asserted, they must be legally cognizable, 306 non-pretextual,307 and any

restriction used to bring about the benefit must be narrowly tailored to limit any adverse impact

on competitive conditions.308

III. Section 910.1: Definitions

Section 910.1 sets forth definitions of several terms used in the final rule.

A. Definition of “Business Entity”

The Commission adopts the definition of “business entity” as proposed.

1. Proposed Definition

The Commission proposed to define “business entity” as “a partnership, corporation,

association, limited liability company, or other legal entity, or a division or subsidiary

305

Atl. Refin. Co. v. FTC, 381 U.S. 357, 371 (1965) (considering that defendant’s distribution contracts at issue

“may well provide Atlantic with an economical method of assuring efficient product distribution among its dealers”

and holding that the “Commission was clearly justified in refusing the participants an opportunity to offset these

evils by a showing of economic benefit to themselves”); FTC v. Texaco, 393 U.S. 223, 230 (1968) (following the

same reasoning as Atlantic Refining and finding that the “anticompetitive tendencies of such system [were] clear”);

Balfour, 442 F.2d at 15 (while relevant to consider the advantages of a trade practice on individual companies, this

cannot excuse an otherwise illegal business practice). For provisions of the antitrust laws where courts have not

accepted justifications as part of the legal analysis, the Commission will similarly not accept justifications when

these claims are pursued through section 5.

306

See, e.g., FTC v. Ind. Fed. Dentists, 476 U.S. 447, 463 (1986); Fashion Originators’ Guild of Am. v. FTC, 312

U.S. 457, 468 (1941); FTC v. Superior Ct. Trial Lawyers Ass’n, 493 U.S. 411, 423-24 (1990).

307

See, e.g., Ind. Fed’n of Dentists, 476 U.S. at 464. See also United States v. Microsoft Corp., 253 F.3d 35, 62-64,

72, 74, 76-77 (D.C. Cir. 2001); Eastman Kodak Co. v. Image Technical Tech. Svcs, 504 U.S. 541, 472, 484-85

(1992); Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 608-10 (1985).

308

NCAA v. Alston, 594 U.S. 69, 100-101 (2021); Polygram Holding, Inc. v. FTC, 416 F.3d 29, 38 (D.C. Cir. 2005);

2000 Collaboration Guidelines, sec. 3.36b. See also Union Circulation Co. v. FTC, 241 F.2d 652, 658 (2d Cir. 1957)

(“The agreements here went beyond what was necessary to curtail and eliminate fraudulent practices.”).

thereof.”309 The term “business entity” was used in two places: (1) in proposed § 910.3, which

contained an exception for certain non-competes entered into in the context of a sale of a

business by a substantial owner of, or substantial member or substantial partner in, the business

entity,310 and (2) in proposed § 910.1(e), which defined “substantial owner, substantial member,

or substantial partner” as an owner, member, or partner holding at least a 25% ownership interest

in a business entity.

The Commission explained in the NPRM that it proposed including divisions and

subsidiaries in the definition of “business entity” to apply the sale-of-a-business exception where

a person is selling a division or subsidiary of a business entity. 311 The Commission stated that the

primary rationale for the sale-of-business exception—to help protect the value of a business

acquired by a buyer—also applies where a person is selling a division or subsidiary of a business

entity.312

2. Comments Received

Two commenters specifically addressed the definition of business entity. One

commenter suggested a new definition using a functional test that the commenter asserted would

prevent employers from structuring their businesses as several smaller legal entities in order to

fall within the sale-of-a-business exception. Another commenter also suggested that the

definition be amended to explicitly include “general partnerships” and trusts.

3. The Final Rule

The Commission adopts the definition of “business entity” as proposed. The Commission

declines to adopt a functional test for the definition of “business entity.” As described in greater

309

NPRM, proposed § 910.1(a).

Id. at 3508.

311

Id. at 3509.

312

Id.

310

detail in Part V.A, the sale-of-a-business exception in the final rule does not contain a 25%

ownership threshold, so employers will not have an incentive to structure their businesses as

several smaller legal entities in order to fall within the sale-of-a-business exception. The

Commission also believes that replacing the current bright-line definition of “business entity”

with a functional test would make it more difficult for workers and employers to know whether a

given non-compete is enforceable in the context of the sale of a business. The Commission

concludes adding the terms “general partnerships” and “trusts” to the definition is unnecessary,

because the phrase “other legal entity” already includes those entity types.

B. Definition of “Employment”

The Commission proposed to define “employment” as “work for an employer, as the

term employer is defined in § 910.1(c).”313 That provision defined “employer” as “a person, as

defined in 15 U.S.C. 57b-1(a)(6) [section 20 of the FTC Act], that hires or contracts with a

worker to work for the person.”314 Section 20 defines “person” as “any natural person,

partnership, corporation, association, or other legal entity, including any person acting under

color or authority of State law.” The Commission intended the proposed definition of

“employer” to clarify that an employment relationship exists, for purposes of the final rule,

regardless of whether an employment relationship exists under another law, such as a Federal or

State labor law.315 The final rule clarifies the definitions to better reflect that intent.

While commenters generally did not address the proposed definition of “employment,”

many commenters expressed concern that the proposed definition of “employer” would exclude

workers hired by one entity to work for another, such as workers hired through a staffing agency.

313

Id., proposed § 910.1(d).

Id., proposed § 910.1(c).

315

Id. at 3510.

314

To avoid excluding such workers, and consistent with the Commission’s intent to cover workers

irrespective of whether they are classified as in an “employer-employee” relationship under other

State and Federal laws, the final rule defines “employment” as “work for a person” and makes

corresponding changes to the definition of “employer,” described in Part III.C. This definition of

“employment” better clarifies that an employment relationship exists, for purposes of the final

rule, regardless of whether an employment relationship exists under another law, such as a

Federal or State labor law.

C. Proposed Definition of “Employer”

The Commission proposed to define employer as a “person, as defined in 15 U.S.C. 57b1(a)(6) [section 20 of the FTC Act], that hires or contracts with a worker to work for the

person.”316 Section 20 defines “person” as “any natural person, partnership, corporation,

association, or other legal entity, including any person acting under color or authority of State

law.”317 The Commission clarified in the NPRM that a person meeting the definition of an

employer under proposed § 910.1(c) would be an employer regardless of whether the person

meets another legal definition of employer, such as a definition in Federal or State labor law. 318

In response to concerns raised by commenters, the final rule does not adopt a definition of

“employer.”

1. Comments Received

Several commenters expressed support for the proposed definition of “employer.” A few

commenters suggested changes to the definition of “employer” to maximize the final rule’s

coverage and close potential loopholes. Worker and employer advocates noted that the proposed

316

Id., proposed § 910.1(c).

15 U.S.C. 57b-1(a)(6).

318

NPRM at 3510.

317

definition appeared to exclude certain persons who are commonly understood to be a worker’s

employer because it assumed that a worker’s employer is the same legal entity that hired or

contracted with the worker. These commenters contended that the proposed definition would not

cover arrangements such as when a worker is employed through a contractual relationship with a

professional employer organization or staffing agency; under a short-term “loan-out

arrangement,” during which a worker hired by one employer may work for another employer;

under contract with a parent, subsidiary, or affiliate of the business who hired them; or by

persons or entities who share common control over the worker’s work. A few of these

commenters also stated that the proposed definition creates a loophole allowing evasion of the

rule through third-party hiring. Most commenters that addressed this issue suggested listing one

or more such arrangements in the definition of “employer” to ensure that these kinds of

arrangements are covered.

One worker advocacy group argued that the term “hires or contracts” in the proposed

definition of “employer” is in tension with the Commission’s stated intent to broadly cover all

workers, including externs, interns, and volunteers. This commenter suggested that the definition

of “employer” incorporate language from the Fair Labor Standards Act (“FLSA”) definition of

“employ,” which includes to “suffer or permit to work.”319 The commenter suggested this

language because of its breadth, noting that the language originated in State laws designed to

reach businesses that use third parties to illegally hire and supervise children.

One industry trade organization argued that, to minimize inconsistencies with the FLSA,

the Commission should incorporate the FLSA’s definition of “employer.”

2. Final Rule

319

29 U.S.C. 203(g).

After considering the comments, the Commission has revised the definitions of “noncompete clause” and “worker” as described in Parts III.D and III.G. These revisions make the

definition of “employer” unnecessary, so the Commission is not finalizing a definition of

“employer.”

These revisions clarify that the final rule covers all workers regardless of whether they

work for the same person that hired or contracted with them to work. As explained in Part III.D,

in the definition of “non-compete clause,” the Commission has revised the phrase “contractual

term between an employer and a worker” to read “term or condition of employment” and has

revised the phrase “after the conclusion of the worker’s employment with the employer” to read

“after the conclusion of the employment that includes the term or condition.” Furthermore, as

explained in Part III.G, in the definition of “worker,” the Commission has revised the phrase “a

natural person who works, whether paid or unpaid, for an employer” to read “a natural person

who works or who previously worked, whether paid or unpaid.”

The Commission is adopting this more general language, rather than listing the exact

kinds of contractual arrangements and entities (e.g., staffing agencies, affiliates, joint employers,

etc.) to avoid unnecessary or confusing terminology, evasion of the final rule through complex

employment relationships, and the need to specify myriad fact-specific scenarios. The language

is designed to capture indirect employment relationships as a general matter without regard to the

label used.

D. Definition of “Non-Compete Clause”

Based on the comments received, the Commission adopts a slightly modified definition

of “non-compete clause” in § 910.1. Section 910.1 defines a “non-compete clause” as a term or

condition of employment that prohibits a worker from, penalizes a worker for, or functions to

prevent a worker from (A) seeking or accepting work in the United States with a different person

where such work would begin after the conclusion of the employment that includes the term or

condition; or (B) operating a business in the United States after the conclusion of the

employment that includes the term or condition. Section 910.1 further provides that, for purposes

of the final rule, “term or condition of employment “includes, but is not limited to, a contractual

term or workplace policy, whether written or oral.” Similar to the proposed rule, the final rule

applies to terms and conditions that expressly prohibit a worker from seeking or accepting other

work or starting a business after their employment ends, as well as agreements that penalize or

effectively prevent a worker from doing the same.

1. Proposed Definition

The Commission’s proposed definition of “non-compete clause” consisted of proposed

§ 910.1(b)(1) and (b)(2). Proposed § 910.1(b)(1) would have defined “non-compete clause” as “a

contractual term between an employer and a worker that prevents the worker from seeking or

accepting employment with a person, or operating a business, after the conclusion of the

worker’s employment with the employer.” Proposed § 910.1(b)(2) would have provided that the

definition in proposed § 910.1(b)(1) includes “a contractual term that is a de facto non-compete

clause because it

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