FTC Halts Unlawful Noncompete Restrictions

Federal Trade Commission (FTC)

The Federal Trade Commission did recently take legal action against three companies and two individuals, forcing them to drop noncompete restrictions that they imposed on thousands of workers. Drawing from the FTC’s substantial expertise in this space, these actions mark the first time that the agency has sued to halt unlawful noncompete restrictions.

According to the complaints issued by the FTC, each of the companies and individuals illegally imposed noncompete restrictions on workers in positions ranging from low-wage security guards to manufacturing workers to engineers that barred them from seeking or accepting work with another employer or operating a competing business after they left the companies.

“These cases highlight how noncompetes can block workers from securing higher wages and prevent businesses from being able to compete,” said Chair Lina M. Khan. “I’m grateful to our talented staff for their efforts to vigorously enforce the law to protect workers and fair competition.”

“The FTC is committed to ensuring that workers have the freedom to seek higher wages and better working conditions without unfair restrictions by employers,” said Rahul Rao, Deputy Director of the FTC’s Bureau of Competition. “The FTC will continue to investigate, and where appropriate challenge, noncompete restrictions and other restrictive contractual terms that harm workers and competition.”

Noncompete restrictions harm both workers and competing businesses. For workers, noncompete restrictions lead to lower wages and salaries, reduced benefits, and less favorable working conditions. For businesses, these restrictions block competitors from entering and expanding their businesses. The FTC recently issued a statement that restored the agency’s policy of vigorously enforcing Section 5’s prohibition on unfair methods of competition.

In its complaints, the FTC said the restrictions constituted an unfair method of competition under Section 5 of the FTC Act. In each case, the FTC has ordered the companies to cease enforcing, threatening to enforce, or imposing noncompete restrictions on relevant workers. They also are required to notify all affected employees that they are no longer bound by the noncompete restrictions.

The companies named in the FTC complaints are:

Prudential Security, Inc. and Prudential Command Inc. In its complaint, the FTC said the two affiliated Michigan-based companies and their owners, Greg Wier and Matthew Keywell, exploited their superior bargaining power against low-wage security guards, requiring them to sign contracts containing restrictions that prohibited them from working for a competing business within a 100-mile radius of their job site with Prudential for two years after leaving Prudential.

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Prudential’s security guards typically earned hourly wages at or near minimum wage, yet the company’s standard noncompete clause included another restriction that required employees to pay $100,000 as a penalty for any alleged violations of the clause, the FTC noted.

According to the FTC, Prudential tried to enforce its noncompete restrictions by suing individual employees and competing security guard companies, in some cases blocking workers from accepting jobs at significantly higher wages. Even after a Michigan state court determined that Prudential’s noncompete restrictions were unreasonable and unenforceable under state law, the companies continued to require all of their security guard employees to sign them.

In August 2022, Prudential sold the bulk of its business to another security guard company. Prudential security guards who now work for the acquiring company are not subject to noncompete restrictions with the company, according to the FTC’s complaint. But approximately 1,500 of Prudential’s former employees were still subject to the noncompete restrictions.

Under the Prudential order, the companies and their individual owners are banned from enforcing, threatening to enforce, or imposing noncompete restrictions on any current or past workers, and are prohibited from imposing noncompete restrictions in any of their other business ventures, including any future business ventures. They are also required to notify all affected employees that they are no longer bound by noncompete restrictions.

Glass container manufacturers:

The FTC also issued complaints against the two largest manufacturers of glass food and beverage containers in the United States, O-I Glass, Inc. and Ardagh Group S.A. According to the agency, the glass food and beverage container industry in the United States is highly concentrated. In addition, it is difficult for new competitors to enter the market in part because of the need to find and hire people who are skilled and experienced in glass container manufacturing. In the complaints, the FTC noted that the companies’ use of noncompete restrictions is likely to impede the entry and expansion of rivals.

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O-I Glass, Inc. According to the FTC, for more than a decade this Ohio-based company imposed noncompete restrictions on employees across a variety of positions. These restrictions typically banned workers, for one year after leaving O-I Glass, from working for, owning, or being involved in any other way with any business in the United States selling similar products and/or services without the prior, written consent of O-I Glass.

At the outset of the Commission’s investigation, more than 1,000 employees of O-I Glass were subject to such noncompete restrictions, including salaried employees who work with the glass plants’ furnaces and forming equipment and in other glass production, engineering, and quality assurance roles.

Ardagh Group S.A. In its complaint, the FTC said Ardagh and two of its U.S. subsidiaries, which manufacture glass food and beverage containers, imposed noncompete restrictions on employees across a variety of positions. The restrictions typically banned workers, for two years after leaving Ardagh, from directly or indirectly performing “the same or substantially similar services” to those the worker performed for Ardagh to any business in the United States, Canada, or Mexico that is “involved with or that supports the sale, design, development, manufacture, or production of glass containers” in competition with Ardagh.

At the outset of the Commission’s investigation, Ardagh had noncompete restrictions in effect with over 700 current employees in the United States, including salaried employees who work with the plants’ furnaces and forming equipment and in other glass production, engineering, and quality assurance roles.

Relief Ordered by the FTC: The orders against PrudentialO-I Glass and Ardagh all prohibit the companies and, where applicable, their individual owners from enforcing, threatening to enforce, or imposing noncompetes against any relevant employees. Additionally, the orders:

  • ban them from communicating to any relevant employee or other employer that the employee is subject to a noncompete;
  • require them to void and nullify the challenged noncompetes without penalizing the affected employees;
  • require them to provide copies of the order to current and past employees who were subject to the challenged noncompetes;
  • require them to provide a copy of the complaint and order to current and future directors, officers, and employees of the companies who are responsible for hiring and recruiting; and
  • require them, for the next 10 years, to 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 them at any time following their employment.
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The FTC has built its expertise with noncompete restrictions through years of policy analysis and public engagement, including an agency workshop in 2020 examining the issue. The Commission also has challenged overbroad noncompete restrictions in connection with a number of mergers reviewed by the agency.

The agency continues to investigate noncompete restrictions and other restrictive terms in employment contracts that may violate the law. If you are aware of an unfair noncompete restriction, you can report it to FTC staff.

The Commission’s vote to issue the administrative complaint and to accept the consent agreement was 3-1, with Commissioner Christine S. Wilson voting no. Chair Lina M. Khan and Commissioners Rebecca Kelly Slaughter and Alvaro Bedoya issued a statement. Commissioner Wilson issued a statement on the Prudential matter and on the O-I Glass and Ardagh matters. The FTC will publish descriptions of the consent agreement packages in the Federal Register soon. The agreements will be subject to public comment, after which the Commission will decide whether to make the proposed consent orders final. Instructions for filing comments appear in the published notices. Comments must be received 30 days after publication in the Federal Register. Once processed, comments will be posted on Regulations.gov.

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