On July 9, 2021, President Biden signed an Executive Order on antitrust and competition policy that identified non-compete clauses as an area for greater scrutiny.[i] The Executive Order invited the FTC to use its “statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”[ii] This week, the FTC significantly advanced the Executive Order's directive:
- On January 5, 2023, the FTC voted 3-1 to propose a new rule that would significantly restrict the use of non-compete clauses between employers and employees.[iii] The FTC’s proposed rule represents the FTC’s first foray into Section 5 competition rulemaking under Chair Lina Khan.
- The proposed rule follows a set of enforcement actions taken by the FTC against non-compete covenants in certain employer contracts. On January 4, 2023, just one day prior to announcing the proposed rule, the FTC voted 3-1 to issue proposed orders against two affiliated security guard companies (Prudential Security, Inc. and Prudential Command Inc.) and their owners and two glass-container companies (O-I Glass, Inc. and Ardagh Group S.A.).[iv] The FTC alleged that these companies employed non-compete clauses that restrict workers’ freedom to accept employment with a competing business, form a competing business, or compete with that employer in any other way.[v]
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[i] Executive Office of the President, Executive Order on Promoting Competition in the American Economy (July 9, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/.
[iii] Press Release, Fed. Trade Comm’n, FTC Proposes Rule to Ban Noncompete Clauses, Which Hurt Workers and Harm Competition (Jan. 5, 2023), https://www.ftc.gov/news-events/news/press-releases/2023/01/ftc-proposes-rule-ban-noncompete-clauses-which-hurt-workers-harm-competition. Chair Lina M. Khan, Commissioner Rebecca K. Slaughter, and Commissioner Alvaro M. Bedoya issued a majority statement on the proposed rule. Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro M. Bedoya, Regarding the Notice of Proposed Rulemaking to Restrict Employers’ Use of Noncompete Clauses, Comm’n File No. P201200 (Jan. 5, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/statement-of-chair-lina-m-khan-joined-by-commrs-slaughter-and-bedoya-on-noncompete-nprm.pdf. Commissioners Slaughter and Bedoya filed a separate concurring statement. Statement of Commissioner Slaughter Joined by Commissioner Alvaro M. Bedoya, On the Notice of Proposed Rulemaking on Non-Compete Clauses, Comm’n File No. P201200 (Jan. 5, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/statement-of-commissioners-slaughter-and-bedoya-on-proposed-rulemaking-noncompete.pdf. Commissioner Wilson filed a dissenting statement. Dissenting Statement of Commissioner Christine S. Wilson Regarding the Notice of Proposed Rulemaking for the Non-Compete Clause Rule, Comm’n File No. P201200-1 (Jan. 5, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/p201000noncompetewilsondissent.pdf.
[iv] Chair Lina M. Khan, Commissioner Rebecca K. Slaughter, and Commissioner Alvaro M. Bedoya issued a majority statement on these matters. Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly Slaughter and Commissioner Alvaro M. Bedoya In the Matters of Prudential Security, O-I Glass Inc., and Ardagh Group S.A. Commission File No. 2210026 & 2110182 (Jan. 4, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/21100262110182prudentialardaghkhanslaughterbedoyastatements.pdf; Commissioner Christine S. Wilson filed dissenting statements relating to both sets of proposed orders. Dissenting Statement of Commissioner Christine S. Wilson, In the Matter of Prudential Security, File No. 211-0026 (Jan. 4, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/wilson_dissenting_statement_-_prudential_security_-_final_-_1-3-23.pdf; Dissenting Statement of Commissioner Christine S. Wilson, In the Matter of O-I Glass, Inc. and In the Matter of Ardagh Group S.A., File No. 211-0182 (Jan. 4, 2023), https://www.ftc.gov/system/files/ftc_gov/pdf/wilson-dissenting-statement-glass-container-cases.pdf.
[v] Compl., In re Prudential Security, Inc., Dkt. No. C-XXXX at ¶ 1 (F.T.C. 2022); accord Compl., In re O-I Glass, Inc., Dkt. No. C- at ¶ 1 (F.T.C. 2022); Compl., In re Ardagh Group S.A., Dkt. No. C- at ¶ 1 (F.T.C. 2022).