FTC launches individual noncompete enforcement actions

The Commission’s history with noncompete agreements is complicated. Before 2023, the Commission had never enforced the antitrust laws against a noncompete agreement between an employer and employee. Then, in January of 2023, the Biden Commission settled three enforcement actions involving noncompete agreements for security guards and glass manufacturing workers. Those settlements were basically the beginning and the end of the Biden Commission’s law-enforcement efforts against noncompete agreements. The very next day, the Commission launched a gargantuan seventeen-month rulemaking that culminated in a final rule purporting to ban almost every noncompete agreement in the country. After opening the rulemaking, the Commission brought only one more enforcement action against noncompete agreements.

The Democrat Commissioners’ choice to throw thousands of manhours into the rule was indefensible. The rule was obviously unlawful. Commissioner Holyoak and I explained at great length the many ways in which the rule violated the Federal Trade Commission Act (“FTC Act”), the Administrative Procedure Act, and the Constitution. The courts unsurprisingly agreed, and the rule was vacated before it went into effect. The rule therefore has not protected a single worker.

That means that for all the Democrat Commissioners’ rhetoric about the dangers of noncompete agreements, the Biden Commission produced only four settled enforcement actions and a failed rule in four years. The immense resources expended on the rule’s promulgation and defense could have instead been expended on investigating and litigating specific cases that could have protected thousands of workers. Instead, the Commission spent it all on a rule that protected none.

The rule’s vacatur does not prevent the Commission from doing what it should have been doing all along—addressing noncompete agreements through enforcement actions against companies that misuse them in violation of the law. The Commission’s enforcement actions, including consent agreements, have a much wider effect than just on the direct subjects of those actions. They set forth, one reasoned decision at a time, the Commission’s view of what circumstances make a particular practice lawful or unlawful under Section 5 of the FTC Act. A steady stream of enforcement actions against an unlawful practice provides the markets with transparency about what the agency believes the law requires—transparency that is very important in the application of generally worded statutes like Section 1 of the Sherman Act and Section 5 of the FTC Act. In response, market participants will often shift their behavior to comply with the agency’s articulated understanding of the law.

All this to say that addressing noncompete agreements through continued enforcement actions will secure real, enduring relief for American workers. Today’s Commission action rightfully does just that.

(Footnotes omitted.)

Given these developments, we now have confirmation that the FTC will be drilling down on what it perceives as the improper uses and abuses of noncompetes (and, presumably, other restrictive covenants).

If you have not already done so, now is the time to review yours.