Well, I guess we have an answer to what the FTC will do about noncompetes, and it’s not rule making — at least not yet.
Instead, they have begun enforcement actions against companies using noncompetes.
They have started with three:
- Ardagh Group S.A., Ardagh Glass Inc., and Ardagh Glass Packaging Inc. (collectively, “Ardagh”)
- O-I Glass, Inc.
- Prudential Security, Inc., Prudential Command Inc., Greg Wier, and Matthew Keywell (collectively, “Prudential”)
Each was filed by the FTC before the FTC (yep, that’s how it works) and alleges “unfair” use of noncompetes in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. Each appears to have been in process since the summer (of 2022) and resulted in an agreement with the respondent before any public disclosure. So, it is quite possible there are many more already in process.
The key allegations in the complaint against Prudential are as follows:
- Prudential used noncompetes for security guards, who “made up the vast majority of [Prudential’s] workforce.”
- The noncompetes had a 100-mile radius and a $100,000 penalty for a violation.
- The security guards “typically earned hourly wages at or only slightly above minimum wage,” were not permitted to negotiate the noncompete, and were not offered “any additional compensation in exchange for signing Non-Compete Agreements.”
- Prudential routinely threatened enforcement of their agreements and “repeatedly brought lawsuits against both individual employees and competing security guard companies to enforce their Non-Compete Agreements.”
- Prudential “contacted competing security guard companies to ask the competing companies to refrain from hiring [Prudential’s] security guard employees because the employees had signed Non-Compete Agreements . . . .”
- At least one court had found the agreements to be unreasonable and unenforceable, but Prudential continued to required their security guards to sign them.
- “Any possible legitimate objectives of [Prudential’s] conduct . . . could have been achieved through significantly less restrictive means, including, for example, by entering confidentiality agreements that prohibited disclosure of any confidential information.”
The key allegations in the complaint against O-I Glass are as follows:
- O-I Glass “manufactures and sells glass containers used for food and beverage packaging,” which is a “highly concentrated” industry with “substantial barriers to entry or expansion, including the ability to identify and employ personnel with skills and experience in glass container manufacturing.”
- O-I Glass used noncompetes that prohibited over 1,000 employees from “be[ing] employed by” or “in any manner be[ing] connected with, any business that sells products and/or services in the United States that are the same or substantially similar to those in which [O-I Glass] deals . . . .”
- Those bound by noncompetes include “salaried employees who work with the glass plants’ furnaces and forming equipment and in other glass production, engineering, and quality assurance roles.”
- “Any legitimate objectives of [O-I Glass’s] conduct . . . could have been achieved through significantly less restrictive means, including, for example, by entering confidentiality agreements that prohibit employees and former employees from disclosing company trade secrets and other confidential information.”
The key allegations in the complaint against Ardagh are quite similar to those against O-I Glass, as both are in the same industry.
Instructively, although each of the complaints seems to suggest that the noncompetes are overly-broad, the complaint against Prudential seems to be primarily focused on the alleged use of noncompetes for low-wage, unskilled workers, whereas the complaints against O-I Glass and Ardagh seem to be more about the use of noncompetes in concentrated markets.
All three of these actions have resulted in a consent order that is subject to review and public comment (from interested parties) over the next 30 days (from yesterday, January 4).
The FTC has provided public statements and other materials for each (here for Prudential, here for O-I Glass, and here for Ardagh).
Interestingly, one of the four Commissioners1 (Christine Wilson) issued a dissent in each. For example, in her dissent in the Prudential matter, Commissioner Christine Wilson commented that she opposed these cases not because she approves of the conduct, but because of a “concern that the Policy Statement would be used to condemn conduct summarily as an unfair method of competition based on little more than the assignment of adjectives.”
I expect that these are just the first, a point highlighted by Commissioner Wilson:
I wish it were accurate to say that this case (with apologies to Shakespeare) is a tale of sound and fury, signifying nothing. Unfortunately, it has great significance: it foreshadows how the Commission will apply the new Section 5 Policy Statement. Practices that three unelected bureaucrats find distasteful will be labeled with nefarious adjectives and summarily condemned, with little to no evidence of harm to competition. I fear the consequences for our economy, and for the FTC as an institution.
Stay tuned.
[1] There are normally five commissioners, but there is a vacancy created by the resignation of Noah Phillips in the fall.