FTC Finds Three Firms Engaged in Illegal Noncompete Agreements (1)

The Federal Trade Commission found that Prudential Security, O-I Glass Inc., and Ardagh Group SA engaged their workers to strike allegedly illegal noncompete agreements, marking the first time the antitrust regulator ordered companies to refrain from such deals.

“The commission finds that the use of noncompetes by these firms constituted an unfair method of competition and violated Section 5 of the FTC Act,” the agency said Wednesday in a statement.

Labor groups have long called on the FTC to enforce against—and prohibit—noncompete agreements, concerned that they hurt wages and reduce worker mobility.

Wednesday’s action is the latest in a series of moves by the antitrust enforcement agencies to confront alleged labor-market competition law violations. The Justice Department’s antitrust division has brought a series of criminal no-poach cases over the last few years, with mixed results.

The FTC’s orders require Michigan-based security services provider Prudential Security, its affiliate Prudential Command, and the companies’ two owners to terminate the agreements with their security guards, in which the workers assented to not working for competitors within a 100-mile radius of their job site for two years after leaving Prudential. Prudential agreements covered 1,500 guards even after the bulk of its business was sold to another company, the FTC said.

Glass container manufacturers O-I Glass and Ardagh are prohibited from imposing or enforcing noncompete agreements on workers, according to the FTC statement. Competition in the industry has been hampered by a high degree of concentration and exacerbated by noncompete agremeents that make finding skilled workers difficult for new market entrants, the FTC said.

More than 1,700 employees at the two companies, separately, were covered by the restrictions when the commission started its investigation, the FTC said.

The agency also required the three companies to provide copies of the order to current and former employees who were covered by the noncompete agreements. New hires for the next decade will have to be notified of their freedom to seek jobs at competitors.

Prudential, O-I Glass and Ardagh didn’t immediately reply to requests for comment.

Democratic commissioners Alvaro Bedoya and Rebecca Kelly Slaughter joined FTC Chair Lina Khan in issuing the orders.

“Today’s actions should put companies and the executives that run them on notice that using noncompetes to restrain workers and restrict competition invites legal scrutiny,” the three wrote in a statement. “We will continue to use our legal authorities to protect all Americans, including by investigating and, where appropriate, challenging restrictive contractual terms that tend to negatively affect competitive conditions.”

Republican Commissioner Christine Wilson dissented against the orders, saying that there is no evidence that the agreements had an anticompetitive effect on the labor market.

The FTC issued the orders under the authority outlined in Section 5 of the FTC Act, which allows the agency to police unfair methods of competition. The Democratic majority’s move to expand that authority beyond its recent usage drew criticism in November.

“I wish it were accurate to say that this case (with apologies to Shakespeare) is a tale of sound and fury, signifying nothing,” Wilson wrote. “Unfortunately, it has great significance: it foreshadows how the Commission will apply the new Section 5 Policy Statement.”

The commission held a workshop on the topic in January 2020.

About one in five Americans is bound by a non-compete agreement, a March 2022 Treasury Department report found. The report estimated that a lack of competition for labor and restrictive agreements like non-competes likely reduce wages by as much as 20%.

Non-compete clauses are banned in some states, such as California, North Dakota and Oklahoma. Other states, including Illinois and Washington, have passed laws limiting their use, particularly among low-wage workers.

Prior to Wednesday’s action, state attorneys general have played the biggest role in challenging non-compete agreements. A coalition of states reached a settlement with sandwich chain Jimmy John’s, part of Inspire Brands Inc., to drop non-competes from its employment contracts.

In 2018, Illinois and New York also reached a deal with WeWork Inc. to stop using non-competes for most employees.

“Although we think the name “non-compete” says it all, for too long working people have been denied the freedom to change jobs, negotiate for better pay, and start new businesses under these coercive agreements,” Sarah Miller, executive director of the American Economic Liberties Project, an antitrust and corporate accountability advocacy group, said in a statement.

—With assistance from Leah Nylen.