Update on the Federal Trade Commission and Non-Competes
January 19, 2023
By: Chad J. Sullivan
The Federal Trade Commission (the “FTC”) has been in the news lately regarding its proposed rule which would ban non-competes in a broad array of situations. In addition to its proposed rule, the FTC has recently issued a statement that it intends to vigorously enforce the Section 5's prohibition on unfair methods of competition. The FTC has recently taken legal action against three companies to force them to invalidate their non-compete agreements on literally thousands of employees.
Prudential Security (“Prudential”)
In its complaint, the FTC alleged that Prudential and its owners exploited their superior bargaining power against low-wage security guards by having them enter non-compete agreements which prohibited them from working for a competing business within a 100-miles for two years after the end of their employment with Prudential.
The FTC noted the fact that the security guards typically earned hourly wages at or near minimum wage, however, the liquidated damages clause in the agreements required employees to pay $100,000 as a penalty for any alleged violations of the clause.
The FTC also noted that Prudential tried to enforce its non-compete restrictions by suing individual employees and competing security guard companies, in some cases blocking workers from accepting jobs at significantly higher wages. Prudential also continued to require its security guards to sign the non-compete agreement after a Michigan state court determined that Prudential’s non-compete restrictions were unreasonable and unenforceable under state law.
Under the Prudential order, the companies and their individual owners are banned from enforcing, threatening to enforce, or imposing non-compete restrictions on any current or past workers, and are prohibited from imposing non-compete restrictions in any of their other business ventures, including any future business ventures. They are also required to notify all affected employees that they are no longer bound by non-compete restrictions.
O-I Glass, Inc. (“O-I Glass”) and Ardagh Group, S.A. (“Ardagh Group”)
The FTC also issued complaints against the two largest manufacturers of glass food and beverage containers in the United States, O-I Glass, Inc. and Ardagh Group, S.A.
O-I Glass, Inc.: O-I Glass required workers across a wide variety of jobs to sign non-compete agreements. The agreements prohibited employees, for one year after leaving O-I Glass, from working for, owning, or being involved in any other way with any business in the United States selling similar products and/or services without the prior, written consent of O-I Glass. More than 1,000 O-I Glass employees were subject to these restrictions.
Ardagh Group S.A.: Ardagh Group which also manufactures glass food and beverage containers, imposed similar non-compete restrictions on its employees. Ardagh Group’s agreements prohibited employees, for two years after leaving Ardagh Group, from directly or indirectly performing “the same or substantially similar services” to those the worker performed for Ardagh Group to any business in the United States, Canada, or Mexico that is “involved with or that supports the sale, design, development, manufacture, or production of glass containers” in competition with Ardagh Group. More than 700 Ardagh Group employees were subject to these restrictions.
Relief Ordered by the FTC
The orders against Prudential, O-I Glass and Ardagh Group all prohibit the companies and, where applicable, their individual owners from enforcing, threatening to enforce, or imposing non-competes against any relevant employees.
Additionally, the orders:
- ban them from communicating to any relevant employee or other employer that the employee is subject to a non-compete;
- require them to void and nullify the challenged non-competes without penalizing the affected employees;
- require them to provide copies of the order to current and past employees who were subject to the challenged non-competes;
- require them to provide a copy of the complaint and order to current and future directors, officers, and employees of the companies who are responsible for hiring and recruiting;
- require them, for the next 10 years, to provide a clear and conspicuous notice to any new employees that “Your employment with [the Company] is not and will not be subject to a noncompete provision” and that they “may seek or accept a job with any company or person” and “may run your own business”, or “compete with us at any time following your employment”; and
- require them to submit Compliance Reports every 90 days for the first year and then annually for the next 9 years.