US FTC Continues Enforcement Against Non-Compete Agreements
The upshot, for busy people:
- On March 15, 2023, the Federal Trade Commission (FTC) announced another settlement involving non-compete agreements with employees that the FTC believes amount to an "unfair method of competition."
- This is the FTC's fourth enforcement action in this space this year. Along with the proposed rulemaking to ban non-compete agreements more broadly, this action is a further signal that the FTC is laser-focused on non-compete agreements in the employment space.
Here, the FTC's latest action was against Anchor Glass, a manufacturer and seller of glass containers used for food and beverage packaging. Notably, the FTC sued not only Anchor Glass, but also against the LLC and LP that owned Anchor. The allegations are sparse; the administrative complaint is only three pages long. But the key allegations include:
- According to the FTC, the US glass container industry is "highly concentrated" and hiring employees with relevant skills in the industry is among the "substantial barriers to entry and expansion."
- The non-compete agreement was for a one-year term, and prohibited employment with any company in the same or substantially similar line of business.
- The complaint alleged that these non-compete agreements impeded entry by rival companies, reduced employee mobility, and lowered wages or other benefits to employees. The complaint also alleged the same objectives could have been achieved through less restrictive means, including by requiring employees to sign confidentiality agreements.
The settlement prohibits Anchor from entering into non-compete agreements with employees, and requires Anchor to provide notice to current employees that existing non-competes are void. Although the order also covers the LLC and LP that own Anchor, the order itself limits coverage to Anchor, and not to any other company that those entities might also own.
What does this mean for my business?
This settlement is yet another signal that the FTC is broadly skeptical of non-compete agreements with employees and other workers. There has been a lot of commentary and attention focused on the FTC's proposed rule banning non-compete agreements, which will almost certainly be challenged in court. But these enforcement actions show that the FTC will, at the very least, use its case-by-case enforcement powers to challenge worker non-competes.
In light of all this, it’s best to stick to first principles: consider reviewing your non-compete agreements for their reasonableness, including duration, geography, and what types of employees they apply to. Check to see that your worker non-compete agreements protect legitimate business interests, like protecting trade secrets and other confidential or proprietary information. And consider whether those non-compete agreements are narrowly tailored to do what you need them to do.