As we previously covered, a group of 18 state attorneys general in July filed comments with the Federal Trade Commission (“FTC”), asking the FTC to incorporate labor concerns when reviewing corporate mergers and to use its enforcement powers under the Sherman Act to stop the use of non-compete, non-solicit, and no-poach agreements in many situations. Many of those same attorneys general recently sent another letter to the FTC, this time urging it to use its rulemaking authority “to bring an end to the abusive use of non-compete clauses in employment contracts.”
In the most recent letter, the attorneys general endorsed the arguments presented in a March 20, 2019, petition submitted to the FTC by various labor unions, public interest groups, and legal advocates, requesting that the FTC initiate rulemaking to classify abusive worker non-compete clauses as an unfair method of competition and per se illegal under the FTC Act for low wage workers or where the clause is not explicitly negotiated. As they did in their previous letter, the attorneys general contend that non-competes “deprive workers of the right to pursue their ambitions and can lock them into hostile or unsafe working environments.” The attorneys general also argue that the arguments in support of non-compete clauses are unpersuasive and that employers can use other “less draconian” ways to recoup their investment in job training, methods of business, and other intangibles. The attorneys general further argued that non-competes burden businesses seeking to hire new employees, which in turn inhibits innovation and drives up consumer costs by suppressing competition.
In urging the FTC to use its rulemaking authority, the attorneys general stated that the FTC has the authority to indentify and prohibit unfair methods of competition, which includes not only practices that violate antitrust laws, but also practices that the FTC determines are against public policy for other reasons. The attorneys general continue to support state and federal legislative reforms to curb non-competes, but believe that an FTC rule “offers the quickest, most comprehensive regulatory path to protecting all workers from these exploitative contracts.”
As we suggested previously, we believe that the efforts by these attorneys general are a reflection of their enforcement priorities, rather than a genuine expectation that the FTC will actually grant their requests. We also think that the attorneys general’s letters exaggerate and sensationalize the abusive enforcement of non-competes against low wage employees. While there may be isolated incidents of employers seeking to enforce non-competes against janitors, home health aides, sandwich makers, and the like, in our experience employers more often seek to enforce such agreements against senior level executives with knowledge of the employer’s valuable trade secrets or customer-facing salespeople that may use confidential information to take customers to their new employer. In any event, while it is unlikely the FTC will use its rulemaking authority to take any action on non-competes, employers in the states represented by these attorneys general should be aware of their enforcement priorities when considering the use of non-competes.
On January 9, 2020, the Federal Trade Commission will hold a public workshop in Washington, DC “to examine whether there is a sufficient legal basis and empirical economic support to promulgate a Commission Rule that would restrict the use of non-compete clauses in employer-employee employment contracts.” We will continue to monitor this situation and report back.