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United States: Federal Trade Commission takes on employer non-compete clauses

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In brief

Over the past week, the Federal Trade Commission (FTC) took a major step to expand competition policy deeper into labor markets.

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/.
[ii] Id.
[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).

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Susan Eandi is the Chair of Baker McKenzie's North America Employment and Compensation Practice Group, head of the Global Employment and Labor Law Practice for North America, and a member of the North America Regional Management Council. She also serves on the Firm's Antiracism Legal Impact Board.
Susan speaks regularly for organizations including ACC, Tech GC, Silicon Valley AGC and World Business Council for Sustainable Development. Susan publishes extensively in various external legal publications in addition to handbooks/magazines published by the Firm.
Susan is a recognized leader in employment law by International Employment Lawyer, The Daily Journal, Legal 500 PLC and is a Chambers-ranked attorney.

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Mark H. Hamer is Global Chair of the Firm's Antitrust & Competition Practice Group, comprised of over 300 competition lawyers in over 60 offices across 43 countries. Mark has over 25 years of wide-ranging litigation experience, including first-chair roles in jury trials, bench trials and arbitrations. His primary focus is antitrust litigation. Before joining Baker McKenzie, Mark was a successful trial attorney in the Antitrust Division of the US Department of Justice. He was involved in some of the DOJ's highest-profile antitrust trials. Before joining the DOJ, Mark was a partner at another global law firm where he handled complex multidistrict antitrust class actions in courts across the nation.

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Bradford Newman is a litigation partner resident in Baker McKenzie's Palo Alto Office and Chair of the North America Trade Secrets Practice. According to Chambers USA, Brad is a "recognized authority on trade secrets cases" who "is valued for his tenacious, intelligent and thoughtful approach to trade secrets matters." Bradford regularly serves as lead trial counsel in cases with potential eight and nine-figure liability, and has successfully litigated (both prosecuting and defending) a broad spectrum of trade secrets cases in state and federal courts throughout the country. He routinely advises and represents the world's leading technology, banking, professional service, manufacturing and commerce companies in connection with their most significant data protection and trade secret matters. Bradford is the author of Protecting Intellectual Property in the Age of Employee Mobility: Forms and Analysis, a comprehensive treatise published by ALM that offers authoritative guidance on legal risks and practical steps companies can take to protect their IP and remedy IP theft.

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Will K. Woods represents franchisors throughout their business life cycle: in the start-up stage; as middle-market franchisors; and as mature, global franchisors. He represents many of the leading hotel, lodging and hospitality franchise companies and has vast experience in negotiating complex franchise and licensing transactions both in the US and in many other countries around the world and in counseling clients across industries with respect to system restructuring and related relationship issues and brand expansion. Will has been listed in Chambers USA and Chambers Global as a leading franchise lawyer every year since 2010 and was praised by clients as a "thorough, diligent and hardworking lawyer: someone who always tries to find a solution." Chambers also noted that he "impresses with his sophisticated international transactions practice" and that he is "client-service oriented, giving practical, useful and implementable advice." He is included in An International Who's Who of Franchise Lawyers and as a Legal Eagle and one of the top 101 franchise lawyers in the US and Canada by Franchise Times. He is regularly named one of the Best Lawyers in Dallas by D Magazine. He was also designated by The Best Lawyers in America as a "Best Lawyer of the Year – Franchise Law" on several occasions. Will is a Certified Franchise Executive. He is the Immediate Past Chair of the ABA Forum on Franchising and serves on the Forum's Governing Committee in that capacity.

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