Unlocking Authority: State AGs Expansive Powers to Tackle Unfair Methods of Competition

State AGs Have Untapped Powers to Carry Forward the FTC's Non-Compete Rule and Tackle Other Unfair Methods of Competition like TRAPs

The signature antitrust policy of the Biden administration is the FTC’s rule banning almost all non-competes and their functional equivalents. Non-competes prevent workers from obtaining alternative employment and impose a range of societal harms, such as lower wages, decreased job mobility, and lower business formation, and ultimately deprive individuals of using their talents to earn a salary. As the FTC details in its landmark rule, the evidentiary record against non-competes is overwhelming. The source of the FTC’s power to enact this rule is Section 6(g) of its enabling statute. The plain text of Section 6(g) is clear: The FTC has the power to “make rules and regulations for the purpose of carrying out the provisions of” the FTC Act, which includes its express prohibition of “unfair methods of competition.”

Despite this, the FTC does face an uphill battle because the judiciary, over the last two decades, has become exceptionally hostile to administrative actions. In the past two years alone, the Supreme Court has created new and potent legal avenues to nullify agency actions.¹ Naturally, then, advocates should be prepared to take advantage of alternative routes to enact this policy. State lawmakers have just such a tool.

In a new op-ed published in the Student Borrower Protection Center’s blog, I describe that 13 state attorneys general have expressly delegated authority to enact rules that can prohibit “unfair methods of competition” similar to the FTC. The 12 states (colored green in the map below) also have a critical statement in their laws that states that the meaning and full legal thrust of “unfair methods of competition” is either greatly influenced by or incorporates the jurisprudence surrounding the interpretation of “unfair methods of competition” in Section 5 of the FTC. This means that the chief law enforcement officer of these states can invoke expansive interpretations of their state law counterparts because the controlling case law for the FTC’s statute is broad. As the FTC details in its Policy Statement Regarding the Scope of Unfair Methods of Competition Under Section 5 of the Federal Trade Commission Act, the controlling case law approvingly cites that Congress intended the phrase “unfair methods of competition” to have an expansive meaning. In one decision, the Supreme Court stated that “[T]he task of defining ‘unfair methods of competition’ was left to the [FTC]. . . and that the legislative history shows that Congress concluded that the best check on unfair competition would be [an administrative agency] . . . [that applies] the rule enacted by Congress to particular business situations[.]”

*States colored green grant their state AGs rulemaking power to proscribe “unfair methods of competition,” the definition of which is guided by interpretations of Section 5 of the FTC Act.*

The full list of state law authorities is listed below.

Using this power, state AGs can enact the same policy the FTC is currently implementing. As the map above details, the state AGs with this power occupy the entire range of the political spectrum, from conservative West Virginia to liberal Massachusetts. Critically, this legal avenue is clearly within the regulatory powers of these state AGs, and many have enacted similar rules invoking their authority to prohibit “unfair or deceptive acts or practices.” Legal challenges will almost certainly fail. As I state in my article, “State enforcers already have the legal tools to continue to carry forward the FTC’s sweeping policy; they just need to act.”

Make sure you check out the full article. This is an untapped power for state AGs. They can easily start with non-competes, but the world is truly their oyster concerning what unfair corporate practices they can prohibit next.

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Image credit: George Becker via Pexels (cropped).

1. In case anyone was wondering, the first legal route the Court invented to nullify agency action is called the Major Questions Doctrine, which, as described in West Virginia v. EPA, annuls any agency action that the federal courts deem to have significant economic or political significance and where the agency cannot point to statutory authority that provides the agency with “clear congressional authorization.” The second is detailed in a decision called Loper Bright Enterprises v. Raimondo, which overturns nearly 40 years of precedent that gave agencies deference concerning ambiguous clauses in their enabling laws so long as the agency’s interpretation was reasonable. As such, when an agency enacts a policy dependent on an ambiguous command from Congress, the federal courts get to decide whether that action is lawful. Each of these decisions, along with other legal avenues such as the non-delegation doctrine, provides a route for the judiciary to nullify the FTC’s rule.