The Federal Trade Commission has taken legal action against three companies and two individuals, forcing them to drop noncompete restrictions that they imposed on thousands of workers. Drawing from the FTC’s substantial expertise in this space, these actions mark the first time that the agency has sued to halt unlawful noncompete restrictions.
According to the complaints issued by the FTC, each of the companies and individuals illegally imposed noncompete restrictions on workers in positions ranging from low-wage security guards to manufacturing workers to engineers that barred them from seeking or accepting work with another employer or operating a competing business after they left the companies.
“These cases highlight how noncompetes can block workers from securing higher wages and prevent businesses from being able to compete,” said Chair Lina M. Khan. “I’m grateful to our talented staff for their efforts to vigorously enforce the law to protect workers and fair competition.”
“The FTC is committed to ensuring that workers have the freedom to seek higher wages and better working conditions without unfair restrictions by employers,” said Rahul Rao, Deputy Director of the FTC’s Bureau of Competition. “The FTC will continue to investigate, and where appropriate challenge, noncompete restrictions and other restrictive contractual terms that harm workers and competition.”
Noncompete restrictions harm both workers and competing businesses. For workers, noncompete restrictions lead to lower wages and salaries, reduced benefits, and less favorable working conditions. For businesses, these restrictions block competitors from entering and expanding their businesses. The FTC recently issued a statement that restored the agency’s policy of vigorously enforcing Section 5’s prohibition on unfair methods of competition.
In its complaints, the FTC said the restrictions constituted an unfair method of competition under Section 5 of the FTC Act. In each case, the FTC has ordered the companies to cease enforcing, threatening to enforce, or imposing noncompete restrictions on relevant workers. They also are required to notify all affected employees that they are no longer bound by the noncompete restrictions.
The companies named in the FTC complaints are:
Prudential Security, Inc. and Prudential Command Inc. In its complaint, the FTC said the two affiliated Michigan-based companies and their owners, Greg Wier and Matthew Keywell, exploited their superior bargaining power against low-wage security guards, requiring them to sign contracts containing restrictions that prohibited them from working for a competing business within a 100-mile radius of their job site with Prudential for two years after leaving Prudential.
Prudential’s security guards typically earned hourly wages at or near minimum wage, yet the company’s standard noncompete clause included another restriction that required employees to pay $100,000 as a penalty for any alleged violations of the clause, the FTC noted.
According to the FTC, Prudential tried to enforce its noncompete restrictions by suing individual employees and competing security guard companies, in some cases blocking workers from accepting jobs at significantly higher wages. Even
