FTC Focuses on Non-Competes in New Strategic Plan and Performance Report

The Federal Trade Commission (“FTC”) just released its Strategic Plan for Fiscal Years 2022-2026 (“Strategic Plan”) and Annual Performance Report for Fiscal Year 2021 and Annual Performance Plan for Fiscal Years 2022 to 2023 (“Performance Report”).

Both documents reference the agency’s desire to rein in non-compete agreements between employers and employees. However, neither provides much detail about how the FTC plans to go about achieving that end.

References to Non-Competes and “Other Potentially Unfair Contractual Terms”

The Strategic Plan sets out the FTC’s three overarching goals for the next five years: (1) protect the public from unfair or deceptive acts or practices in the marketplace; (2) protect the public from unfair methods of competition in the marketplace and promote fair competition; and (3) advance the FTC’s effectiveness and performance.

One of the FTC’s strategies to take action against “anticompetitive mergers and business practices” is to “[i]ncrease use of provisions to improve worker mobility including restricting the use of non-compete provisions.” (Strategic Plan, p. 14, emphasis added.)

Later in the Strategic Plan, the FTC describes “[f]ocus[ing] on workers” as a strategy to “[e]ngage in research, advocacy, and outreach to promote public awareness and understanding of fair competition and its benefits.” Within that strategy, the FTC says it will “[s]tudy and investigate the impact on worker wages and benefits from merger and nonmerger conduct, as well as non-compete and other potentially unfair contractual terms resulting from power asymmetries between workers and employers.” (Strategic Plan, p. 16, emphasis added.) The Performance Report echoes this language. (Performance Report, p. 71.)

More Questions than Answers

We already know the FTC has its eye on non-competes. I co-signed a letter from 70 lawyers and paralegals around the country in response to the FTC’s joint workshop with the Department of Justice in December 2021 on promoting competition in the workforce. Our letter sought to dispel common myths about non-competes and urge caution in any federal effort to regulate an area that has been governed by state law since the country’s founding.

We’ve been keeping track of FTC orders in the Daily Rundown and flagging those where the FTC has required companies to refrain from enforcing their non-compete agreements in the context of a challenged merger. There have been at least three such orders in the last two months.

The Strategic Plan and Performance Report confirm that the FTC is not easing up on non-compete agreements and potentially other restrictive covenants any time soon. But there’s still much we don’t know. For example:

1. Will the FTC propose rulemaking to regulate non-competes throughout the country? Does it even have the legal authority to do so? At least some commenters have noted the FTC’s potential legal basis to regulate non-competes took a blow after the Supreme Court decision this June limiting the Environmental Protection Agency’s ability to regulate carbon emissions.

2. If the FTC does pursue rulemaking, will it seek a complete ban on all non-competes, or limit the regulation to low-wage workers or other categories, such as those who are nonexempt under the Fair Labor Standards Act?

3. What are the “other potentially unfair contractual terms” the FTC references in the Strategic Plan and Performance Report? Could this be a signal that the FTC will start scrutinizing restrictive covenants other than non-competes, like customer or employee non-solicitation provisions?

4. What impact will the FTC’s recent Memorandum of Understanding with the National Labor Relations Board have on its strategy for tackling the problems it perceives in the labor market?

Whatever the FTC, DOJ, or NLRB do to regulate non-competes or other restrictive covenants, we’ll be following closely and providing updates and insights along the way.