‘Be Prepared to Defend It’ – FTC Signals More Aggressive Posture Toward Noncompete Agreements

The workshop underscored the FTC’s view that noncompetes are a barrier to both workers’ success and industry competition, and it will take enforcement action against broad, workforce-wide use. 

In his opening remarks, FTC Chairman Andrew Ferguson was unequivocal: Broadly defined noncompetes with an “anticompetitive purpose” will attract enforcement. He acknowledged that there are circumstances where noncompetes may be justified for highly skilled employees or those handling sensitive information. But Ferguson cautioned that agreements meant to “simply protect the employer from competition” are unjustifiable. Instead, Ferguson emphasized that a noncompete must serve “pro-competitive goals.” 

The FTC signaled that it will not deploy broad regulations to achieve its enforcement objectives. Instead, Ferguson explained that the FTC will proceed on a “case-by-case basis,” with the Commission conducting an individualized assessment of agreements, employers, and circumstances. Ferguson’s warning was direct: “If a company wants to execute a [noncompete] agreement, they had best be prepared to defend it.” 

Following Ferguson’s remarks, panels of policy advocates, affected employees, and FTC staff signaled the FTC’s likely areas of focus. For example, an FTC attorney facilitated a discussion by a panel of physicians about how their employers attempted to justify the noncompete agreements, and whether the noncompete agreements had a negative downstream effect on patient access to quality care. When discussing recent FTC enforcement activity, Mark Woodward, assistant director in the Anticompetitive Practices II Division, specifically called out the health care industry, highlighting that the Commission’s recent Request for Information (RFI) resulted in a notably high volume of health care workers reporting their employers’ use of noncompete agreements. Late last year, the FTC issued warning letters to certain health care employers and staffing companies. 

Kelse Moen, deputy director of the Bureau of Competition, asserted that health care noncompetes can depress wages and limit mobility to high-need areas. Moen stated, “Hopefully this panel is sending the message that we are here to enforce.” Moen signaled eagerness to litigate what he called “ridiculous” uses of noncompetes, adding, “We’re not going away.” 

The workshop also pointed to other industries at risk of enforcement. For instance, Jonathan Berry, solicitor at the US Department of Labor, highlighted that the use of noncompetes for low-wage workers seems particularly unjustifiable. Woodward pointed to FTC actions against a pet cremation service, a security company, a building amenity services company, and two glass container manufacturers. 

Woodward warned employers to “consider alternatives,” noting that targeted non-solicitation agreements, non-disclosure agreements, and fixed-term contracts can often address employers’ goals, with less restriction on workers.

The workshop did not directly address the fact that the courts are not yet in agreement with the breadth of the FTC representatives’ statements: A federal court has yet to rule that hospital-physician noncompetes are anticompetitive, and there are relatively few cases holding other health care providers’ noncompetes to be anticompetitive — those cases often recognize that physician specialists are often supported by extensive investments. Meanwhile, several states, including the District of Columbia, Maryland, and Pennsylvania, have enacted legislation that expressly permits noncompetes for certain health care professionals subject to specified salary, geographic, and durational limitations. 

Key Takeaways From the FTC Workshop for Employers

Employers should take this opportunity to review their use of employee noncompetes:

• Audit the use of noncompete agreements across your workforce. An employer should develop a clear record of who is currently bound by a noncompete agreement and identify key terms of those agreements. 

• Evaluate the scope and duration of those noncompete agreements. The FTC (and courts) will evaluate an agreement’s geographic scope and duration when considering the reasonableness of a noncompete. Both must be reasonably related to the employer’s business goals and must not be overly restrictive. Standardized, broadly deployed noncompetes will increase enforcement risk. Employers may benefit from assessing whether targeted non-solicitation, non-disclosure, or fixed-term agreements can achieve the same goals. 

• Identify your justifications for the noncompete agreement. The FTC is more likely to challenge agreements that do little more than shield an employer from competition. Employers should be prepared to show — by documenting now — a procompetitive purpose that articulates why the noncompete agreement is necessary. 

ArentFox Schiff’s Antitrust & Competition Law team and Labor, Employment & OSHA practices regularly advise employers on strategies for antitrust and noncompete compliance that align with their business goals.