In what may be a surprise to those who thought that restrictions on the use of noncompetes would go away with the change in administration, this week, the Federal Trade Commission (FTC) announced that the agency will form a Joint Labor Task Force that will “prioritize rooting out and prosecuting deceptive, unfair, and anticompetitive labor-market practices that harm American workers.”[1] FTC Chair Andrew Ferguson issued a memorandum reminding everyone that the FTC’s authority includes protecting American consumers in their role as workers.[2]
Texas Court Issues National Injunction Barring Enforcement of the FTC’s Noncompete Ban
In a complete victory for plaintiffs, a Texas court permanently enjoined the Federal Trade Commission’s (FTC) rule banning nearly all employee noncompetes. In the absence of the court’s decision, the rule had been scheduled to become effective on September 4. While the litigation regarding the FTC rule is pending in Texas, Florida, and Pennsylvania federal courts and the FTC has pledged to continue its efforts to stop the use of noncompetes, the Texas opinion gives businesses much-needed clarity regarding the rule and eliminates the need for employers to address the rule by September 4.
Pennsylvania Court Denies Injunction Against FTC’s Noncompete Ban
In direct conflict with a recent Texas court ruling, on July 23, an Eastern District of Pennsylvania court denied ATS Tree Services’ motion for a preliminary injunction to stay the effective date of the Federal Trade Commission’s (FTC) noncompete ban. The ATS court limited application of its decision to the plaintiff, but its holding — “the FTC is empowered to make both procedural and substantive rules as is necessary to prevent unfair methods of competition” — conflicts with the Texas federal court’s conclusion that “the FTC lacks the authority to create substantive rules.” The Texas court intends to rule on the merits of its case by August 30, just four days before the ban’s effective date. While it seems likely that the Texas court will strike down the noncompete ban, given that this decision may not come down until the eve of the ban (and may not ultimately rule in favor of plaintiffs), employers should take steps now to prepare for the possibility of the ban becoming effective right after Labor Day.
Texas Court Temporarily Enjoins FTC Noncompete Ban Rule
As workers were leaving their offices for the Fourth of July holiday, the Northern District of Texas issued its much-anticipated order preliminarily enjoining the effective date of the Federal Trade Commission’s (FTC) controversial noncompete ban rule. The court’s decision, however, is limited to the named plaintiffs — a tax accounting firm and several business groups — in the case. Although the stay is temporary pending the court’s final decision on the merits of the case and applies only to the movants in the case, it signals that a permanent and nationwide injunction is likely.
Understanding the FTC’s Noncompete Ban: A Comprehensive Guide for Employers
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Tuesday, May 21 • 2:00 – 3:00 p.m. ET
The Federal Trade Commission (FTC) recently voted along party lines to enact a comprehensive ban on nearly all worker noncompetition provisions. This final rule, which applies to a broad range of employers and employees – from entry-level to executives, is scheduled to become effective on September 4, 2024, 120 days following its publication in the Federal Register on May 7, 2024.
FTC Bans Employee Noncompete Clauses
This article was republished on EACC-NY on April 25, 2024.
The Federal Trade Commission (FTC) voted along party lines (3 to 2) to ban all worker noncompetition provisions. The final rule applies to all employees, including senior executives, and will become effective on September 4, 2024.
Employers Beware: Worker Misclassification May Be Seen as Anticompetitive Conduct
Speaking at the Global Competition Review: Law Leaders Global Summit last month, Commissioner Alvaro M. Bedoya of the Federal Trade Commission (FTC) argued that the FTC could — and should — combat worker misclassification under Section 5 of the FTC Act, as an unfair method of competition. Commissioner Bedoya advocated that worker misclassification — when an employer classifies a worker, who should be an employee, as an independent contractor — satisfies the criteria established by the FTC in its November 2022 policy statement, for when conduct constitutes an unfair method of competition. Specifically, the commissioner stated that worker misclassification distorts competitive conditions when it allows companies who improperly classify their employees as independent contractors to underbid those competitors that correctly classify employees. Additionally, worker misclassification may be coercive, exploitative, and abusive when workers who know they are being misclassified feel that they have no choice but to accept such treatment. Commissioner Bedoya also suggested that an employer’s efforts to limit the independence of a worker classified as an independent contractor could constitute an illegal vertical restraint on trade.
DOJ Fails to Convict in No-Poach/Wage Fixing Case
The Department of Justice (DOJ) Antitrust Division recently suffered another setback in its most recent effort to secure criminal convictions for labor-side violations of Section 1 of the Sherman Act. Having finally secured a successful criminal conviction, which came by way of plea deal and deferred prosecution agreement, the DOJ proceeded to trial in Maine against four home health executives who the government alleged had conspired to enter into a no-poach agreement and fix wages paid to home health aides. After a two-week trial, the jury acquitted all four of the defendants, marking the third time the DOJ has failed to convince a jury to convict defendants for alleged Section 1 violations in the labor market.
FTC Proposes Rule to Ban Noncompete Clauses With Very Limited Exceptions
On January 5, the Federal Trade Commission (FTC) voted 3-1 to publish its Notice of Proposed Rulemaking, proposing a new rule that, if implemented, would bar employers from entering into noncompete agreements with their workers, and require employers to rescind existing noncompete restrictions with current and former workers. The proposed rule supersedes state laws that are less protective of employees, but keeps the state law that provides employees greater protection. The proposed rule excludes franchisees from the definition of “worker” and has a single, limited exception that applies to the sale of a business.
No-Poach Case Against HP Dismissed for Failure to Allege a Plausible Conspiracy
Q: Is proof of conspiracy required to state a claim that a no-poach agreement violated antitrust laws?
A: Many recent no-poach agreement antitrust claims have risen within the franchise context, where the alleged agreement was plainly described in the operative franchise agreements. In those cases, the parties fought over what standard of review should apply to the undisputed agreement. However, franchise cases are the exception not the norm. Many, if not most, Sherman Act Section 1 claims rise or fall on the plausibility of the allegations of an agreement, often oral, between the accused firms. Recently, the Ninth Circuit affirmed a district court’s dismissal of a factually threadbare no-poach antitrust claim. In Fonseca v. Hewlett-Packard Co.,[1] a former employee of Hewlett-Packard Co. (HP), who was fired by HP and not hired by one of HP’s competitors, alleged HP had entered into an illegal no-poach agreement with the competitor. Highlighting that no-poach antitrust cases require more than simply allegations of agreements and parallel conduct, the Ninth Circuit upheld the district court’s dismissal because the allegations of a conspiracy did not make sense and were not plausible. The decision serves as a poignant reminder that despite the class action bar’s and various government enforcement agencies’ (FTC, DOJ, and states attorneys general) stated desire to use the antitrust laws to protect employees’ wages and mobility, the law requires sufficient proof of a conspiracy to get beyond the pleadings stage of litigation.