With the elevation of JD Vance to Republican vice presidential nominee, and polling showing the Democratic Harris-Walz ticket outperforming its Biden-led predecessor, there is a renewed focus on both parties’ warmth towards “hipster antitrust” and “Neo-Brandeisian” Federal Trade Commission (FTC) Chair Lina Khan.
For her part, Harris has made a crackdown on “price gouging,” in which Khan or at least her agency would presumably lead, a focal point of the campaign. Vance couches his Khan fandom in the context of supporting her and her fellow Biden administration neo-Brandeisians’ targeting of Big Tech. Popular though that may be with portions of the GOP base, it should not distract from some very unconservative rulemaking Khan has engaged in. Critics of Khan believe that some of this rulemaking—specifically in the area of banning noncompete agreements—could set a bad precedent for future, less conservative-friendly regulating by the FTC—if the noncompete rule even survives, that is. Another court decision just days ago out of Texas suggests it will not. It could also have other, negative knock-on effects that backers of Khan may not have fully thought through.
Thanks to U.S. District Judge Ada Brown, seated in the Lone Star State, Khan’s noncompete ban appears stalled. This is despite a Pennsylvania federal judge upholding the noncompete ban following an initial Texas decision that partly parked the noncompete ban. That “partial” block now appears “permanent,” per Law360.
Opposition on the part of the U.S. Chamber of Commerce, one of the major foes of the rule, appeared to be less about wanting to keep noncompetes around and more about the FTC’s having decided to unilaterally create a noncompete ban. When the FTC announced its noncompete rules, Chamber CEO Suzanne P. Clark called it a “blatant power grab” by “three unelected commissioners.”
It’s worth noting that most U.S. states have legislative restrictions of some kind on noncompete agreements, according to the Economic Innovation Group. Four states—California, Oklahoma, Minnesota, and North Dakota—have outright bans. A dozen states have no restrictions on noncompete agreements and leave it up to state courts to decide whether something is enforceable or not.
Texas law places limits on some noncompetes—mostly for doctors.
Beyond the questions over the FTC’s ability to unilaterally ban non-competes, one additional matter is whether such broad bans on noncompetes is even good policy. In Texas, where bans on noncompetes are more limited, that may be top of mind given litigation involving a serial entrepreneur who’s accused of creating cookie-cutter companies and, possibly, committing elder abuse.
Christopher Willis founded Guiding Hospice in Round Rock and later sold the company to Traditions Health in 2019. With the sale came a multi-year noncompete. Three years later, Willis created Luminos Hospice, with locations in Texas and Oklahoma, apparently violating his noncompete.
Traditions sued and accused Willis of engaging in hacking, theft, and HIPAA violations.
There’s more to the story, however. Willis and Luminos face other, darker allegations and federal lawsuits.
Most salaciously, they are also alleged to have engaged in behavior that some might regard as a form of elder and/or terminally ill patient abuse, purely for raw profit. One lawsuit alleges “seeding confusion, and causing chaos and trauma” to hospice patients, who by definition are in their final six months of life, “solely out of their self-interest of padding their financial bottom line.” The courts will have to decide what is what in this case, but corporate records indicate that Willis set up Luminos before his non-compete is said to have expired.
It’s possible that Willis may have intended to start the new company and ultimately sell it back to Traditions, or another company in the hospice sector. Private equity and hedge funds had considered the hospice sector one that was ripe for investment. That’s not the case now.
Traditions seems unlikely to want to do business with him in the future, and it’s hard to believe that others operating in the space would feel differently. The case underlines why non-competes may not be the total garbage that critics claim, even where they apply to workers who are not making hundreds of thousands of dollars every year– and why defenders of Khan might want to think twice given the specifics of her non-compete policy.
To be fair, the FTC’s action in banning non-competes clearly carves out individuals in Willis’s specific circumstance. But it would appear to cover the likes of home health workers, nurses, business development/sales, and administrative staff unless they held an ownership stake in the company originally sold.
Questions remain on whether the FTC’s non-compete ban would allow people to follow Willis’s lead and violate valid noncompete agreements. That could put patients at risk even if word gets out that Willis-owned companies shouldn’t be trusted.
People may try to point toward the 2019 settlements between sandwich shop Jimmy John’s and the states of Illinois and New York. Jimmy John’s formerly blocked workers from moving from their sandwich shops to a competitor like Subway. However, there was no evidence that Jimmy John’s told hourly workers that they couldn’t join a competing business.
At the same time, it’s disturbing to see the FTC willing to enact a non-compete ban that’s a blatant abuse of power—as well as one with potentially very adverse side effects. The U.S. Constitution clearly sets out that Congress has the authority to enact laws, while the Executive branch, of which the FTC is part, only has the authority to enforce the laws. It’s a separation of powers issue when the FTC attempts to legislate away non-compete agreements, and conservatives should be wary of lining up with Khan wholesale in view of this—as should progressives, if only because a recent Supreme Court decision regarding the Chevron doctrine plus the current makeup of the Court makes it more likely that the Texas view of the FTC’s noncompete ban holds up, and the Pennsylvania perspective falls by the wayside. That may be good news for limited government fans, but bad news for populists.
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