The FTC set its sights on non-compete agreements as it debuts its powers under Section 5 of the FTC Act—demanding more of employers than is required under traditional antitrust laws.  

Through Section 5 of the FTC Act, Congress affords the FTC the unique ability to identify and police against “unfair methods of competition,” beyond the contours of other antitrust statutes—namely, the Sherman and Clayton Acts. In the past, the FTC’s policy has been to employ Section 5 in a limited set of circumstances invoking “the promotion of consumer welfare.” In a statement made on November 10, 2022, the FTC shed its previous policy in favor of a more expansive and amorphous view of its statutory authority under Section 5. According to the FTC’s “non-exclusive set of examples of conduct,” unfair methods of competition include: (i) mergers and exclusive dealing arrangements that “have the tendency to ripen into violations of the antitrust laws;” (ii) “practices that facilitate tacit coordination;” and (iii) “parallel exclusionary conduct that may cause aggregate harm.” As a result of the FTC’s “know it when you see it” approach, practitioners and professionals were left in the dark as to how the FTC would choose to exercise its Section 5 authority.

But the FTC recently shed light on the exercise its Section 5 powers: bringing three complaints to halt non-compete agreements, which as FTC Chair Lina M. Khan put it, “can block workers from securing higher wages and prevent businesses from being able to compete.” The FTC sued the two largest manufacturers of glass food and beverage containers in the United States, O-I Glass, Inc. and Ardagh Group S.A., as well as affiliated companies Prudential Security, Inc. and Prudential Command Inc. and their owners. These three actions are the first instance of the FTC suing to block non-compete restrictions.  In each complaint, the FTC alleges that the non-compete “constitutes an unfair method of competition with a tendency or likelihood to harm competition [and] consumers. . . in violation of Section 5 . . .”  For each case, the FTC ordered respondents to cease enforcing, threatening to enforce, or imposing non-compete agreements, as well as notify covered individuals that they would no longer be bound by the agreements. The details of the complaints are as follows:

  • With respect to Ardaugh and O-I glass, the FTC pointed to the concentrated nature of the glass container industry, as well as “substantial barriers to entry and expansion, including the ability to identify and employ personnel with skills and experience in glass container manufacturing.” The complaints added that, the agreements have the tendency or likely effect of “(i) impeding the entry and expansion of rivals in the glass container industry, (ii) reducing employee mobility, and (iii) causing lower wages and salaries, reduced benefits, less favorable working conditions, and personal hardship to employees.”
  • In the Prudential complaint, the FTC focused on the fact that Prudential and its owners took advantage of unequal bargaining power—particularly with respect to low-wage security guard employees.  Indeed, the Prudential non-compete barred employment with a competing business “within a one hundred (100) mile radius” of the employee’s primary jobsite, and included a $100,000 liquidated damages provision, despite the fact that many of the covered workers earned only slightly over minimum wage and were not offered any additional compensation in exchange for signing the non-compete.  In this case, the FTC noted that “Respondents repeatedly used their Non-Compete Agreements to block their employees from accepting alternative employment, including employment at significantly higher wages . . .”

With these actions, the FTC is giving us a taste of its reclaimed ability to expansively enforce Section 5.  But the legitimacy of this ability remains to be seen—much less the consequences of such a dramatic departure from traditional antitrust enforcement. The FTC’s actions could be viewed as a first step towards “federalizing” traditionally state-governed non-compete laws.  But the path forward isn’t clear.  None of the three non-compete complaints were actually litigated.  Future FTC targets could choose to contest the FTC’s exercise of Section 5 authority, pointing to any of the number of issues cited by Commissioner Christine Wilson in her dissent from the issuance of the November policy statement.  Wilson argued that the FTC’s renewed embrace of its Section 5 powers improperly repudiates both the consumer welfare standard and the rule of reason, and—instead of providing businesses with meaningful guidance upon which to structure their conduct—the policy “announces that the Commission has the authority summarily to condemn essentially any business conduct it finds distasteful.”  And courts may well agree.  The Second Circuit has instructed that “the Commission owes a duty to define the conditions under which conduct . . . would be unfair so that businesses will have an inkling as to what they can lawfully do rather than be left in a state of complete unpredictability.”  E.I. du Pont de Nemours & Co. v. Federal Trade Commission.

That being said, there are some things we can predict:  it is only a matter of time before the FTC expands its focus to other industries, including entertainment, life sciences, and healthcare.  Tellingly, the very day after the FTC filed these complaints, it proposed an expansive new rule that would impose a near-complete ban on the use of non-competes by employers. 

For a more detailed breakdown of the proposed rule, please visit our sister blog: Law and the Workplace.

In the meantime, employers should reflect on their approaches to non-compete provisions and other restrictive covenants intended to protect trade secrets and other valuable business assets, such as non-disclosure agreements and non-solicitation agreements.

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Photo of Colin Kass Colin Kass

Colin Kass is a partner in the Litigation Department and co-chair of the Antitrust Group, and a member of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team. An experienced antitrust and commercial litigation lawyer, Colin has litigated cases before federal and state courts throughout…

Colin Kass is a partner in the Litigation Department and co-chair of the Antitrust Group, and a member of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team. An experienced antitrust and commercial litigation lawyer, Colin has litigated cases before federal and state courts throughout the United States and before administrative agencies. His practice involves a wide range of industries and spans the full-range of antitrust and unfair competition-related litigation, including class actions, competitor suits, dealer/distributor termination suits, price discrimination cases, criminal price-fixing investigations, and merger injunctions.

Colin also has extensive experience dealing with the Federal Trade Commission and Department of Justice in obtaining clearance for competitively-sensitive transactions and handling anticompetitive practices investigations. His practice also includes counseling clients on their sales, distribution, and marketing practices, strategic ventures, and general antitrust compliance.

Photo of David Munkittrick David Munkittrick

David Munkittrick is a litigator and trial attorney. His practice focuses on complex and large-scale antitrust, copyright and entertainment matters in all forms of dispute resolution and litigation, from complaint through appeal.

David has been involved in some of the most significant antitrust…

David Munkittrick is a litigator and trial attorney. His practice focuses on complex and large-scale antitrust, copyright and entertainment matters in all forms of dispute resolution and litigation, from complaint through appeal.

David has been involved in some of the most significant antitrust matters over the past few years, obtaining favorable results for Fortune 500 companies and other clients in bench and jury trials involving price discrimination and group boycott claims. His practice includes the full range of antitrust matters and disputes: from class actions to competitor suits and merger review. David advises antitrust clients in a range of industries, including entertainment, automotive, pharmaceutical, healthcare, agriculture, hospitality, financial services, and sports.

David also advises music, publishing, medical device, sports, and technology clients in navigating complex copyright issues and compliance. He has represented some of the most recognized names in entertainment, including Sony Music Entertainment, Lady Gaga, U2, Madonna, Daft Punk, RCA Records, BMG Music Publishing, Live Nation, the National Academy of Recording Arts and Sciences, Universal Music Group and Warner/Chappell.

David maintains an active pro bono practice, supporting clients in the arts and in immigration proceedings. He has been repeatedly recognized as Empire State Counsel by the New York State Bar Association for his pro bono service, and is a recipient of Proskauer’s Golden Gavel Award for excellence in pro bono work.

When not practicing law, David spends time practicing piano. He recently made his Carnegie Hall debut at Weill Recital Hall with a piano trio and accompanying a Schubert lieder.

David frequently speaks on antitrust and copyright issues, and has authored or co-authored numerous articles and treatise chapters, including:

  • Causation and Remoteness, the U.S. Perspective, in GCR Private Litigation Guide.
  • Data Breach Litigation Involving Consumer Class Actions, in Proskauer on Privacy: A Guide to Privacy and Data Security Law in the Information Age.
  • Location Privacy: Technology and the Law, in Proskauer on Privacy: A Guide to Privacy and Data Security Law in the Information Age.
  • FTC Enforcement of Privacy, in Proskauer on Privacy: A Guide to Privacy and Data Security Law in the Information Age.
  • The Role of Experts in Music Copyright Cases, Intellectual Property Magazine.
  • Nonprofit Education: A Historical Basis for Tax Exemption in the Arts, 21 NYSBA Ent., Arts, & Sports L.J. 67
  • A Founding Father of Modern Music Education: The Thought and Philosophy of Karl W. Gehrkens, Journal of Historical Research in Music Education
  • Jackson Family Wines, Inc. v. Diageo North America, Inc. Represented Diageo in trademark infringement litigation
Photo of Erica T. Jones Erica T. Jones

Erica Jones is an associate in the firm’s Litigation Department, where her practice encompasses a range of business, regulatory, and corporate governance matters. She has worked extensively in defense of securities class actions, derivative suits, and white collar criminal matters involving investigations by…

Erica Jones is an associate in the firm’s Litigation Department, where her practice encompasses a range of business, regulatory, and corporate governance matters. She has worked extensively in defense of securities class actions, derivative suits, and white collar criminal matters involving investigations by the SEC, DOJ, and state attorneys’ offices. In addition, Erica has advised on antitrust matters involving allegations of price fixing, restraint of supply, monopolization, group boycott, bid rigging, and collusion across industries that include agriculture and health care. She is also a member of the litigation team representing the Financial Oversight and Management Board in the Commonwealth of Puerto Rico’s bankruptcy proceedings.

Erica maintains an active, diverse pro bono practice, with a focus on immigration law, compassionate release and habeas corpus, and racial justice. She is an associate trustee with the Washington Lawyers’ Committee for Civil Rights and Urban Affairs and has been recognized by the District of Columbia Courts’ Capital Pro Bono Honor Roll. Erica was also one of a few women selected to be a Protégée for Proskauer’s Women Sponsorship Program, an initiative for high performing midlevel lawyers that champions emerging leaders.

Erica strives to stay on the cutting edge of developing areas of law through her membership in Proskauer’s COVID-19 Task Force, ESG Working Group, and Private Credit Litigation Group.  Erica’s ability to advocate for her clients is further bolstered by her recent Master’s Degree in Accounting from the University of North Carolina’s Kenan-Flagler Business School with a concentration in Financial Reporting and Analysis.

Prior to joining Proskauer, Erica was an intern with the Department of Justice in the Constitutional and Specialized Tort Litigation Section. Outside of her career in the law, Erica has been featured on Fox’s So You Think You Can Dance, teaching ballroom dance to students at Lighthouse for the Blind.

Photo of Reut N. Samuels Reut N. Samuels

Reut is an associate in the Litigation Department and a member of the Antitrust Practice and Asset Management Groups. During her time at the firm, she spent a five-month secondment working pro bono for the City of New York in the Torts Division…

Reut is an associate in the Litigation Department and a member of the Antitrust Practice and Asset Management Groups. During her time at the firm, she spent a five-month secondment working pro bono for the City of New York in the Torts Division, Special Litigation Unit.

Reut earned her J.D. from New York University School of Law and her B.S. from Cornell University. During law school, she worked at the US Attorney’s Office, Criminal Division in the Southern District of New York, as well as at the Manhattan District Attorney’s Office. Reut served as an Articles Editor for the Journal of Legislation and Public Policy.