Federal Trade Commission officials and witnesses offered many critiques of noncompete agreements during a public hearing Tuesday, but little in the way of proposals that would match the scope of the agency’s short-lived nationwide ban on the agreements.
Noncompetes can have anticompetitive effects on workers, employers and consumers, said FTC Chairman Andrew Ferguson, adding that the commission would pursue enforcement against agreements that lack a sufficient justification and that have adverse effects. However, he decried the Biden-era FTC’s effort to issue a blanket prohibition as an overreach.
“The Biden administration’s proposed rule was pure lawmaking, was undeniably general in its application, preempted state laws, would have had a massive effect on the nation’s economy and would have enacted a nationwide ban on noncompete agreements that Congress has frequently considered adopting but as always declined to do,” Ferguson said. “Like so many other actions in the Biden administration, it was an unlawful power grab.”
FTC adopted its ban in the form of an April 2024 final rule that was set to take effect later that year. The ban drew legal challenges from a variety of stakeholders in multiple states, and though the agency prevailed in one lawsuit, the restoration of a Republican majority effectively killed the rule.
In lieu of a similar effort, Ferguson said FTC would take an approach of “education through enforcement,” recognizing that noncompetes may advance some pro-competitive employer interests but that they also must be narrowly tailored to achieve an employer’s goals.
Ferguson pointed to recent enforcement efforts such as a recently proposed consent order for Gateway Services, Inc., a pet cremation company. FTC had alleged Gateway imposed unlawful noncompetes prohibiting almost all employees from working in the same industry anywhere in the U.S. for up to a year after separation.
“Some will object that this is too piecemeal of an approach to being an effective solution,” he continued. “Maybe they’re right in one sense, but the objection is beside the point.”
Debate on ‘best approach’ continues
Ferguson said the agency lacks the power to issue the kind of blanket rule advocated by its former Democratic leadership. He also argued that the history of U.S. antitrust law cuts against this approach.
Attendees did receive a glimpse into how the commission might approach the agreements moving forward, though. Mark Woodward, an FTC attorney and assistant director of one of its anticompetitive practices divisions, said the adverse effects of noncompetes particularly affect workers who lack bargaining power in their employment relationships.
Even a noncompete limited in geography and time doesn’t rule out potential adverse effects, Woodward said. FTC considers both factors in its analysis, but they are “not necessarily dispositive,” he noted.
Healthcare has been a “particular focus” for FTC, Woodward noted, saying that concerns about anticompetitive noncompetes are “especially significant in healthcare markets,” where the agreements can limit employment options for medical professionals and restrict patients’ choices for selecting where to receive care.
That focus has already appeared in the agency’s enforcement efforts: Ferguson issued multiple warning letters to healthcare employers and staffing firms last year asking them to review their agreements.
But that industry-by-industry approach is not the best method for preventing unlawful agreements, according to John Lettieri, president and CEO of the Economic Innovation Group.
“I would like to see broadly applicable restrictions across the board,” Lettieri said during the event. “The best approach is one that broadly liberates workers to pursue what is best for them.”
FTC attorney’s message to employers: ‘Consider alternatives’
Employers should consider alternatives to noncompetes where possible, Woodward said.
For example, targeted nonsolicitation agreements can protect investments and client relationships, while nondisclosure agreements can protect company information. Fixed-term contracts may provide an alternative to noncompetes where employers desire to protect investments in employee worker training.
Such agreements are often less restrictive than noncompetes and achieve employers’ stated goals better than noncompetes can in the first place, Woodward continued.
Employers with agreements that FTC deems overbroad can expect enforcement activity up to and including litigation, he noted.
“I personally look forward to litigating some cases in this area,” Woodward said. “I like our chances on many of the fact patterns we’ve heard about today.”
