At the risk of sounding the alarm bells too often, I am doing it again: The FTC is not going to sit by and do nothing else while it reviews the 26,813 submissions it received in response to its proposed noncompete ban and decides on a final path forward – which, FYI, some people think may not be until April of next year.1 (For what it’s worth, I can’t imagine that the FTC will actually wait that long, but time will tell.)
Regardless, as I’ve said many times before, the FTC will continue to bring enforcement actions. It’s not just me saying it. They are doing it. And companies need to be aware and plan accordingly.
This is happening now.
I have been meaning to post about this since I first saw the FTC’s press release on March 15 (thank you to Erika Hahn for bringing it to my attention that day), but have been unable to get to it until now.
Remember that the day before issuing its Notice of Proposed Rulemaking (“NPRM”) to ban noncompetes, the FTC revealed three enforcement actions (the first ever revealed). They revealed those actions in the context of announcing settlements with the respondents. (That timing was obviously no coincidence, as the FTC supported its proposed ban based in part on the existence of those enforcement actions.)
While everyone was busy working on their submissions in response to the NPRM (here’s mine and Erika’s with over 100 signatories), the FTC was indeed continuing its behind-the-scenes enforcement actions. (Remember the FTC files a complaint at the FTC – yep!)
Although it seems to have flown largely under the radar, the FTC announced its fourth enforcement action, again in the glass container industry. This one is against Anchor Glass Container Corp. and its owners, Lynx Finance GP, LLC and Lynx Finance L.P.
As with the earlier ones, the new complaint alleges “unfair” use of noncompetes in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. Also as with the earlier ones (and the NPRM), Commissioner Wilson issued a dissent.
As with the others, there is also a proposed consent agreement that imposes obligations that last for years, including, “Anchor must, for the next 10 years, provide a clear and conspicuous notice to any new relevant employees that they may freely seek or accept a job with any company or person, run their own business, or compete with Anchor at any time following their employment.”
These are not going away.
I fully expect that there are many more enforcement actions already in process and others will be brought soon. Indeed, the FTC’s press release expressly states, “If you are aware of an unfair noncompete restriction, you can report it to FTC staff.”
If alarm bells were not already sounding, they should be now. Companies need to be prepared.
As I have said before, the threat is not the proposed rule (I expect that will be invalided before it becomes effective). The real threat is these ad hoc enforcement actions.
Steps to take now:
This is the time to evaluate your use of noncompetes, as well as any of your agreements that the FTC may determine to be “de facto” noncompetes under its proposed functional test in the NPRM.
In that vein, I would not be surprised in the least to see the FTC bring enforcement actions involving nondisclosure agreements to highlight its “de facto noncompete” approach.
Just to be clear, all of your restrictive covenants are at risk and should be reevaluated. That includes your nonsolicits, no-service/no-accept agreements, no-recruit agreements, no-hire agreements, garden leave clauses, notice provisions, forfeiture-for-competition covenants, training repayment agreements, and the rest – all of them. And it does not matter whether they are part of an employment agreement, a stock or option award, a stock buy-back plan, or otherwise.
If you haven’t already done so, you really should be ramping up your trade secret protection program, covering the full employment lifecycle, from recruiting and onboarding to off-boarding and after, and everything in between. And make sure the program also covers protections for your other legitimate business interests, including in particular protections for your customer/client goodwill and workforce stability.
Here are some resources to help (all available for free):
- 50-State Noncompete Law Chart, the first of its kind and regularly updated (downloadable PDF);
- Chart of Noncompete “Low-Wage” Thresholds and Criteria (downloadable);
- Notice requirements summary chart, providing details for each of the 8 states (plus D.C.) that has notice requirements related to noncompetes (downloadable PDF);
- “Changing Trade Secrets | Noncompete Laws” (dedicated blog page) now provides a current detailed summary of the changing landscape of trade secret laws and noncompete laws around the country, state by state and at the federal level;
- Trade secret and other legitimate business interest protection plan strategy and checklist; and
- Ten Minute Trade Secret Training Series, currently with three training videos and one “basics” video:
We also have a 50-State and Federal Trade Secret Law Chart, providing a comparison of the trade secrets laws nationally to the Uniform Trade Secrets Act (downloadable PDF).
We hope you find all of these resources useful.
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[1] Thank you to Erik Weibust for passing along the Bloomberg article predicting the April 2024 timing.