FTC intends to “vigorously” prosecute employers for unlawful noncompete agreements, calls on current and former employees for help.

Earlier this month, the Federal Trade Commission’s Joint Labor Task Force announced its first ever enforcement action against an employer, Gateway Pet Memorial Services (“Gateway”), ordering it to stop enforcing unlawful noncompete agreements against its employees.  The FTC charged Gateway with using overbroad noncompete agreements that had no individualized consideration for an employee’s role.  It mandated that Gateway cease entering into and enforcing noncompete agreements and agreements prohibiting solicitation of customers (with limited exceptions), and that it notify various employees that they were no longer subject to a noncompete agreement.

Acknowledging the courts’ vacatur of the FTC’s ban on non-compete agreements (which Liskow previously reported on here), Chairman Andrew N. Ferguson, joined by Commissioner Melissa Holyoak, explained that “the Trump-Vance Commission will act as a cop on the beat, enforcing the antitrust laws against unlawful noncompete agreements to protect American workers, rather than trying to legislate them away.”

Indeed, the FTC’s action against Gateway is the first of a “steady stream” of enforcement actions against unlawful noncompete agreements to come.  “Rest assured: today’s action will not be the last,” warned Kelse Moen, Deputy Director of the Bureau of Competition and the co-chair of the Joint Labor Task Force.

Employers should heed this warning, especially because the FTC asked for current and former employees’ help in advancing its aggressive law enforcement efforts.  In a multi-page questionnaire, the FTC asked the public for information on: (1) the specific employers that continue to impose noncompete agreements; and (2) the scope of use of noncompete agreements.  Specifically, the FTC directs the public to answer almost 30 questions to inform its prosecution strategy, including:

• What is the name of any employer currently known to you to be using employee noncompete agreements?
• What reason, if any, has the employer given for using noncompete agreements?
• What are the terms or limitations of the noncompete agreements (such as the duration or geographic scope)?
• Do the noncompete agreements harm current or former employees who take, consider taking, or would like to take new jobs? If so, how?
• Are you aware of the employer using non-solicitation or non-recruitment agreements that limit former employees from working with the employer’s former customers or former employees? Can you provide examples?

So, what does this mean for employers?  An FTC challenge to or inquiry about employers’ specific noncompete agreement could be on the horizon.  But that doesn’t mean employers should abandon their noncompete agreements wholesale.  After all, the FTC Chairman acknowledged that noncompete agreements can be lawful and that each should be assessed on a case-by-case basis.  Employers should, however, review and reevaluate their noncompete agreements to ensure that they are no broader than necessary to protect a legitimate business interest and continue to adhere to state-law requirements. 

Liskow employment lawyers Ellie George and Tommy McGoey will continue to monitor the legal landscape in the wake of the FTC’s action and are available to answer any questions regarding this update or your noncompete agreements. For further inquiries, visit our Labor & Employment practice page.