As our antitrust colleagues explained recently, on August 26, 2022, the Federal Trade Commission (FTC) published its “Strategic Plan for Fiscal Years 2022–2026,” as required under the GPRA Modernization Act of 2010. Readers of this blog will be interested in two small, but important, items in the Strategic Plan related to noncompete agreements.
First, under “Objective 2.1: Identify, investigate, and take actions against anticompetitive mergers and business practices,” the FTC opines that “[a]nticompetitive mergers and business practices harm Americans through higher prices, lower wages, or reduced quality, choice, and innovation. Enforcement of antitrust laws provides substantial benefits to the public by helping to ensure that markets are open and competitive.” It then identifies certain “[s]trategies” that the FTC intends to pursue over the next five years, including “[i]ncreas[ing] use of provisions to improve worker mobility including restricting the use of non-compete provisions.” It’s unclear exactly what provisions it intends to increase its use of, but nonetheless the FTC will be focused on the issue.
Later, under “Objective 2.2: Engage in research, advocacy, and outreach to promote public awareness and understanding of fair competition and its benefits,” the FTC identifies, as another strategy it intends to pursue, “[f]ocus[ing] on workers: Study 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.” The FTC has been “studying” this issue for several years now, having held a few public workshops, but apparently it intends to continue its study of the issue.
There is frankly not much new in these statements, and what is most interesting (although not necessarily most telling) may be that these “strategies” are watered down substantially from FTC Chairwoman Lina Kahn’s stated desire to use the FTC’s rulemaking authority to prohibit noncompetes (albeit more in line with President Biden’s July 9, 2021 Executive Order in which he “encourage[d]” the FTC to “consider” exercising its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility”).
As we have previously written in Law360, it is questionable whether the FTC even has the authority to regulate, much less prohibit, noncompetes, particularly following the Supreme Court’s decision in West Virginia v. Environmental Protection Agency, in which the Court further elucidated on the “Major Questions Doctrine.” Nevertheless, despite that decision, and despite the FTC’s seemingly watered-down approach to noncompetes in its 5-year Strategic Plan, it would not come as a surprise if the FTC issued proposed rules limiting, if not outright prohibiting, noncompete agreements nationwide. Indeed, as we previously reported in July, the FTC entered into a Memorandum of Understanding with the National Labor Relations Board (NLRB) announcing their “continued and enhanced coordination and cooperation concerning issues of common regulatory interest,” which they suggest “will help to protect workers against unfair methods of competition, unfair or deceptive acts or practices, and unfair labor practices.” The FTC and NLRB expressly identified as an “[i]ssue of common regulatory interest . . . the imposition of one-sided and restrictive contract provisions, such as noncompete and nondisclosure provisions.”
We will continue to monitor the FTC’s comments and actions regarding noncompetes and report back with any material updates.