Non-Compete Agreements
Growing Scrutiny Over Non-Competes
During the Biden administration, the National Labor Relations Board (NLRB) and Federal Trade Commission (FTC) took aggressive positions against employment non-competes. The NLRB issued Memorandum GC 23-08 positing that non-competes generally violate the National Labor Relations Act (NLRA) by interfering with Section 7 rights. The FTC went further by issuing a final rule to ban most non-competes. A Texas federal court struck it down in 2024 as beyond the FTC’s authority, and the FTC appealed. In the second Trump administration, the NLRB rescinded GC 23-08, and the FTC abandoned its appeal. In 2026, however, the agencies went in different directions, with the NLRB stating that non-competes generally do not affect Section 7 rights, while the FTC continued case-by-case enforcement through consent orders and other actions. As a result, employers should review agreements for non-compete provisions that the FTC may view as unlawful, which could expose them to litigation and potential invalidation of some contract terms.
Recent FTC Consent Orders Regarding Non-Competes
The FTC has issued 3 consent orders regarding non-competes since it abandoned the appeal of its final rule, focusing on case-by-cases scrutiny of employment contracts.
- Gateway Services, Inc.
The FTC ordered Gateway Services to release all employees from their non-compete agreements, which covered approximately 1,800 people, from executives to wage workers. Under these agreements, former employees were prohibited from working for any other pet cremation service for 12 months after leaving Gateway. The FTC took issue with the lack of individualized consideration of employees' roles.
- Rollins, Inc.
The FTC also ordered Rollins, Inc. to stop enforcing non-compete agreements, which covered more than 18,000 employees nationwide. Many of these employees were low-wage workers and were typically prohibited from working in pest control within a 75-mile radius of any Rollins location, of which there are more than 700 in the United States.
- Adamas Amenity Services LLC
The FTC has also taken a stance against no-hire agreements, ordering Adamas Amenity Services LLC to cease the enforcement of all existing no-hire agreements. These agreements were made with businesses and building managers across New Jersey and New York, prohibiting them from hiring current and former Adamas employees without paying a significant fee.
These orders were focused on overly broad agreements that prevented employees from easily seeking other employment that they were required to sign without extra compensation or proper time to review.
Conceptual Approaches That May Avoid Federal Scrutiny
The consent orders provide the greatest insight into what the FTC currently views as unlawful when it comes to non-compete agreements. To protect business interests, employers should consider several possible options in addition to non-compete or no-hire agreements, with a prudent approach including a combination of non-solicitation, confidentiality, and intellectual property protection agreements. Whether an individual employer takes any or all of these precautions should be discussed with legal counsel.
- A non-solicitation agreement should be reasonable:
o It ordinarily should cover only customers with whom the employee personally worked or whose confidential information the employee accessed.
o It should have a reasonable temporal limit.
o A non-solicitation agreement might also prohibit soliciting the employer's other employees.
- A confidentiality agreement protects business interests when an employee leaves:
o The agreement can be fairly broad, but it cannot cover wages or working conditions, nor should it effectively prohibit competition.
o A confidentiality agreement should have a reasonable temporal limit and focus on information an employee actually developed or gained during employment.
- Promises to comply with trade secret and intellectual property laws can be practical additions to employment contracts:
o Such provisions remind the employee of pre-existing obligations not to misuse an employer's trade secrets or intellectual property.
o They may extend prescription periods for violations from three years to a state's statute of limitations for breaches of contract.
Overall, an employer should review its non-compete policies, ensuring that they are narrowly tailored for individual employees, considering their position, compensation, and access to confidential information. The FTC may target policies that it views as unlawfully anti-competitive or that unduly discourage employees from exercising their rights to change jobs or negotiate for better pay and conditions. Of course, a tried and true practice for protecting business interests, as Richard Branson famously said, is: "Train people well enough so they can leave, treat them well enough so they don't want to."