by Bilal Sayyed
Bilal Sayyed (Picture courtesy of Cadwalader, Wickersham & Taft LLP)
The rule prohibiting the enforcement and use of employer-employee non-compete agreements (“Rule”) is lifeless. In September, the Federal Commerce Fee (“FTC” or “Fee”) “took steps to dismiss its appeals in Ryan LLC v. FTC (5th Cir.) and Properties of the Villages v. FTC (11th Cir.) and to accede to the vacatur of the Non-Compete Clause Rule.” Federal Commerce Fee Information to Accede to Vacatur of Non-Compete Clause Rule (Sept. 5, 2025). The 2 appellate courts have granted the Fee’s requests for dismissal.
However the Fee’s dismissal of its appeals of the unfavorable choices with respect to the Rule, FTC Chairman Andrew Ferguson indicated that the Fee will not be backing off from an curiosity in non-competes. The Fee, he says, will “defend American staff by … patrolling … markets for particular anticompetitive conduct that hurts American … staff and taking unhealthy actors to court docket.” Assertion of Chairman Andrew N. Ferguson Joined by Commissioner Melissa Holyoak, Ryan LLC v. FTC, at 3 (Sept. 5, 2025).
For these companies who believed that the Rule and the Biden Administration’s enforcement actions previous to adoption of the Rule had been overbroad and undermined the legit use of non-compete agreements within the employer-employee relationship, the FTC’s persevering with curiosity on this situation might require important changes to the usage of non-compete agreements in employment contracts, and the Trump-led FTC might transfer extra aggressively than the Biden-led FTC to establish, examine and prohibit non-compete agreements. Employers who use non-compete agreements ought to evaluation the scope and breadth of these agreements to verify that they’re according to relevant regulation, together with the Fee’s aggressive interpretation of Part 5.
The latest settlement with Gateway Providers, Inc. (“Gateway” or the “firm”) means that the Fee will deal with non-compete agreements as “inherently suspect” and require employers to point out that any legit profit from the usage of non-compete agreements can’t be obtained by a much less restrictive various. This burden is inconsistent with Supreme Courtroom Sherman Act case regulation. The Fee has adopted an expansive and Fee-friendly interpretation of the appliance of Part 5’s prohibition of unfair strategies of competitors to non-compete agreements (15 U.S.C. §45(a)).
In Gateway, the Fee’s Criticism alleged that the corporate’s requirement that every one staff (besides these in California) comply with a 12-month post-employment covenant to not compete was an unfair methodology of competitors and prohibited by Part 5 of the FTC Act. In keeping with the FTC, Gateway entered into non-compete agreements with none individualized consideration of an worker’s position, utilizing them with extremely compensated executives and with staff compensated on an hourly foundation. Hourly staff “account[ed] for the overwhelming majority of [Gateway’s] U.S. primarily based staff topic to Non-Compete Agreements.” Evaluation to Support Public Remark, Gateway Providers, Inc. (launched Sept. 4, 2025), at 2.
The Fee’s proposed Determination and Order (“Proposed Order” or “Proposed D&O”) settling its grievance:
- Prohibits Gateway from coming into into, sustaining, implementing (or threatening to implement) a “Coated Non-Compete Settlement” with a “Coated Worker.”
- Prohibits Gateway from speaking to a Coated Worker or any potential or present employer of a Coated Worker that the Coated Worker is topic to a Coated Non-Compete Settlement.
- Prohibits Gateway from stopping a Coated Worker from “soliciting present or potential clients, besides with respect to these present or potential clients with whom the Coated Worker, within the final 12 months of his or her employment by [Gateway], had direct contract or personally offered service.”
- Requires Gateway to stop implementing all present Coated Non-Compete Agreements.
- Requires Gateway not require any Coated Worker who is a celebration to an present Coated Non-Compete Settlement in america to pay any charges or penalties regarding a Coated Non-Compete Settlement.
- Restricts the usage of non-competes within the sale of a enterprise by limiting their use to individuals with an fairness stake within the enterprise being bought.
- Incorporates substantial entry, compliance, discover, and reporting obligations, according to these of different FTC Orders.
- Runs for ten years.
A Coated Worker is:
A Individual employed by [Gateway], beforehand employed by [Gateway] through the earlier one 12 months previous to the date that the Order is issued, or within the technique of being employed by [Gateway], in america, together with third-party contractors. (Proposed D&O at § I.F.)
A Coated Non-Compete Settlement is:
An Settlement [agreement, contract, understanding, or provision or term thereof, whether express or implied, written or unwritten] between [Gateway] and a Coated Worker that restricts or restrains the best or means of the Coated Worker to hunt or settle for employment with any Individual [including corporations, partnerships, unincorporated entities, or a natural person], to function a enterprise, or in any other case compete with [Gateway]. (Proposed D&O at §I.G.)
A Coated Non-Compete Settlement doesn’t embrace:
Agreements containing a non-competition covenant entered into with [Gateway’s] director, officer, or senior worker, along side the grant of fairness or equity-based pursuits in [Gateway]. (Proposed D&O at §I.G.)
The Fee’s evaluation of the aggressive results of the Gateway non-compete agreements was restricted however differs solely barely from the evaluation articulated within the Biden Administration’s non-compete enforcement actions.[1] On the time, these enforcement actions had been criticized by the one Republican member of the Fee as insufficiently pleading an antitrust violation.[2] Whereas the grievance in Gateway doesn’t set forth per se illegality for non-competes beneath Part 5, the factual allegations which the Fee units forth for exhibiting aggressive hurt adequate to assist an unfair methodology of competitors declare may be very low.
- Gateway “acknowledge[d] that Non-Compete Agreements for workers cut back aggressive pressures” and seen them “as vital in suppressing competitors, not only for staff it’d terminate but additionally for these it supposed to retain.” Criticism, at ¶¶ 12-13.
- The corporate additionally used them “as a direct response to aggressive threats in a single market – responding to the entry of a competing pet cremation enterprise by executing Non-Compete Agreements with staff not already topic to [such] agreements, together with hourly staff.” Criticism, at ¶¶ 14. (The sooner complaints, referenced above, didn’t have an identical factual allegation.)
- The Fee’s grievance recognized the Non-Compete Agreements as “anticompetitive as a result of they alter[ed] the bargaining place between staff and Gateway,” “as a result of they’ve the doubtless function and impact of suppressing competitors by impeding the entry and enlargement of Gateway’s opponents within the pet cremation companies business,” and “have the doubtless function and impact of suppressing competitors by stopping or discouraging Gateway staff from opening competing pet cremation companies.” Complaint, at ¶¶ 12-17.
- The grievance alleges hurt to each staff – decrease wages and salaries, decreased advantages, much less favorable working situations, and private hardship to staff – and, arguably, hurt to present competitors within the pet cremation business. Evaluation to Support Public Remark, at 2 (decoding grievance).
Very comparable allegations, with equally restricted factual improvement, are included within the earlier complaints pursued by the Biden-led FTC.[3] The Fee additionally believed that “any legit goals” of the Non-Compete Agreements “may have been achieved by considerably much less restrictive means.” Criticism, Gateway, at ¶18. Within the earlier Fee enforcement actions, the Fee believed the identical.[4]
The Fee didn’t allege that Gateway had market energy in any labor market, nor in any market associated to its operation of pet cremation services. It didn’t allege that the markets that Gateway operated in had been concentrated. The earlier “glass container” complaints all alleged that the business was concentrated with substantial obstacles to entry and enlargement.[5] The Fee didn’t allege any of the respondents had market energy in any related marketplace for labor or for end-products (or companies) in these issues.
Maybe as a result of it couldn’t present or present indicia of market energy, the Fee didn’t allege that Gateway’s conduct was, or had the impact of, restraining competitors according to a Sherman Act Part 1 declare. On the information as offered within the grievance, the Fee couldn’t allege that the non-compete agreements allowed Gateway to acquire or preserve a monopoly place or created an affordable chance of monopolization of a related market, according to Part 2 of the Sherman Act. The Fee may solely allege a stand-alone violation of Part 5’s prohibition of unfair strategies of competitors – a declare inadequate to satisfy the necessities of the Sherman Act however according to the Coverage Assertion Relating to the Scope of Unfair Strategies of Competitors (Nov. 2022) launched by the Biden-led FTC. The identical place was adopted within the 4 employer-employee non-compete settlement enforcement actions by the FTC within the earlier administration.
Chairman Ferguson characterizes the evaluation the Fee will apply to non-compete agreements as just like the reasonableness take a look at utilized by state courts when assessing the lawfulness of non-compete agreements. Assertion of Chairman Andrew N. Ferguson Joined by Commissioner Melissa Holyoak, Within the Matter of Gateway Pet Memorial Providers (Sept. 4, 2025) at 5-6. This, he suggests, is just like antitrust regulation’s rule of motive evaluation. However the rule of motive typically requires an evaluation or exhibiting of market energy, both not directly by market shares, or instantly, by anticompetitive results in a related market, earlier than concluding a restraint in that market will not be cheap.[6] That is very true with respect to vertical agreements which are alleged to restraint commerce.[7] An employer-employee non-compete settlement is a vertical restraint.
A court docket, in reviewing a non-compete beneath the Sherman Act would doubtless require an worker to point out an anticompetitive impact in a marketplace for a category of labor. Right here, the Fee alleged no related market, and made no exhibiting of aggressive hurt. The Chairman and the Fee are making use of a decrease customary to the evaluation of non-compete agreements than is required in a Sherman Act declare.
Commissioner Meador, in a separate assertion, rejected the necessity for the Fee to point out market energy earlier than prohibiting the usage of non-compete agreements as an unfair methodology of competitors. Assertion of Commissioner Mark R. Meador, Within the Matter of Non-Compete Clauses (Sept. 5, 2025). In keeping with Commissioner Meador, Part 5 can attain conduct that has “adversarial financial penalties on … staff … absent conventional showings of market energy or structural market harms” and “provides a complementary method” that shifts the evaluation from a market energy evaluation and “exactly quantifiable financial results” to “a extra holistic evaluation” of “problematic incentives and outcomes.” It’s an evaluation “alongside” – not inside – “Part 1 and Part 2 of the Sherman Act.”
In effectuating this evaluation, Commissioner Meador places the burden on the respondent/defendant to defend the legality of the non-compete:
[A]n employer [the respondent/defendant] should exhibit that the noncompete is fairly essential to forestall hurt from materializing and, in flip, that narrower restraints (e.g., non-disclosure agreements, buyer non-solicitation clauses, asset use restrictions, mental property protections, and so on.) are inadequate to deal with the potential hurt to the employer’s enterprise pursuits. … This method could be extra akin to treating noncompetes as being topic to a ‘rebuttable presumption’ of illegality, with the employer bearing the burden to exhibit that the noncompete is fairly essential to attain legit enterprise pursuits and narrowly tailor-made towards that finish.
Like Chairman Ferguson’s method, Commissioner Meador’s method illustrates the Fee’s aggressiveness. Whereas Sherman Act case regulation is muddled on the query of who has the burden of exhibiting a restraint meets the least restrictive various take a look at, latest Supreme Courtroom regulation locations it on the plaintiff. In NCAA v. Alston and Ohio v. American Categorical, the Supreme Courtroom acknowledged that it’s the plaintiff’s burden, not the defendant’s burden.[8]
The framework the FTC is growing beneath Part 5 of the FTC Act shifts the burden to the respondent/defendant to point out that there isn’t any much less restrictive various to the usage of a non-compete settlement. That is more likely to be tough, particularly within the case of non-senior executives and lower-wage staff.
[1] See Criticism, Anchor Glass Container Corp. (Might 18, 2023); Criticism, Prudential Safety, Inc. (Feb. 23, 2023); Criticism, Ardagh Group S.A. (Feb. 21, 2023); and Criticism, O-I Glass Inc. (Feb. 21, 2023).)
[2] Dissenting Assertion of Commissioner Christine S. Wilson, Anchor Glass Container Corp. (Mar. 14, 2023) ((grievance alleges that the usage of non-compete agreements tends to hurt competitors and staff, however fails to supply information to assist the hypothesized end result,” “doesn’t make factual allegations concerning the shortcoming of a competing rival within the glass container business to enter or broaden,” and “doesn’t establish a related marketplace for explicit varieties of labor and fails to allege a market impact on wages or different phrases of employment”); Dissenting Assertion of Commissioner Christine S. Wilson, Prudential Safety (Jan. 4. 2023) at 1-2 (“grievance provides no proof of any anticompetitive impact in any related market” and provides solely a conclusory assertion that any attainable legit goals … may have been achieved by considerably means”); Dissenting Assertion of Commissioner Christine S. Wilson, O-I Glass and Ardagh Group (Jan. 4, 2023) at 3 (“the complaints described intimately the obstacles to entry within the glass container business however didn’t reference the issue of acquiring skilled staff” and “don’t establish a related marketplace for expert labor as an enter to glass container manufacturing, and fail to allege a market impact on wages or different phrases of employment”).)
[3] See Criticism, Anchor Glass Container Corp. (Might 18, 2023) at ¶ 10 (tendency or doubtless impact of harming competitors, shoppers and staff by impeding the entry and enlargement of rivals within the glass container business, decreasing employer mobility and inflicting decrease wages and salaries, decreased advantages, much less favorable working situations, and private hardship to staff); Criticism, Ardagh Group S.A. (Feb. 21, 2023) at ¶ 10 (similar); Criticism, O-I Glass Inc. (Feb. 21, 2023) at ¶ 8 (similar); and Evaluation to Support Public Remark, O-I Glass and Ardagh Group at 4 (“Restrictions usually outcome from employers’ outsized bargaining energy in comparison with that of staff. And, by decreasing staff’ negotiating leverage vis-à-vis their present employers, Non-Compete Restrictions are likely to impair employee’s means to barter for higher pay and dealing situations.”). See additionally Criticism, Prudential Safety, Inc. (Feb. 23, 2023) at ¶¶ 24,25 (use of non-compete agreements interfered with competitors and compelled staff to just accept considerably decrease wages and fewer favorable working situations; due to the unequal bargaining energy between employer and worker, employer was capable of impose onerous non-compete agreements on staff). In Gateway, the grievance alleged that the non-compete agreements altered the bargaining energy between employer and staff; the sooner complaints had been barely completely different, alleging that there was unequal bargaining energy between employers and staff, and that allowed the employer to impose non-compete agreements on the worker.
[4] See Criticism, Anchor Glass at ¶ 11; Criticism, Ardagh Group at ¶ 11; Criticism, O-I Glass at ¶9; Criticism, Prudential Safety, at ¶ 26.
[5] See Criticism, Anchor Glass at ¶ 8; Criticism, Ardagh Group at ¶ 8; Criticism, O-I Glass at ¶6.
[6] NCAA v. Alston, 594 U.S. 69 (2021) (“Figuring out whether or not a restraint is undue for functions of the Sherman Act presumptively requires what we’ve got described as a rule of motive evaluation. That method of research typically requires a court docket to conduct a fact-specific evaluation of market energy and market construction to evaluate a challenged restraint’s precise impact on competitors.”).
[7] Ohio v. American Categorical, 585 US 529, 541 (2018) (vertical restraints are assessed beneath the rule of motive, and “the plaintiff has the preliminary burden to show that the challenged restraint has a considerable anticompetitive impact that harms shoppers within the related market”).
[8] NCAA v. Alston, 594 U.S. 69, 100 (2021) (the district court docket required the plaintiff student-athletes “to point out that there are considerably much less restrictive various guidelines that will [allow the defendant, the NCAA, to] obtain the identical procompetitive impact because the challenged guidelines,” as corresponds to the third step of the American Categorical framework) and Ohio v. American Categorical, 585 US 529, 542 (2018) (“burden shifts again to the plaintiff to exhibit that the procompetitive efficiencies could possibly be moderately achieved by much less anticompetitive means”).)
Bilal Sayyed is a Counsel at Cadwalader, Wickersham & Taft LLP.
The views, opinions and positions expressed inside all posts are these of the creator(s) alone and don’t signify these of the Program on Company Compliance and Enforcement (PCCE) or of the New York College Faculty of Legislation. PCCE makes no representations as to the accuracy, completeness and validity or any statements made on this website and won’t be liable any errors, omissions or representations. The copyright of this content material belongs to the creator(s) and any legal responsibility close to infringement of mental property rights stays with the creator(s).
by Bilal Sayyed
Bilal Sayyed (Picture courtesy of Cadwalader, Wickersham & Taft LLP)
The rule prohibiting the enforcement and use of employer-employee non-compete agreements (“Rule”) is lifeless. In September, the Federal Commerce Fee (“FTC” or “Fee”) “took steps to dismiss its appeals in Ryan LLC v. FTC (5th Cir.) and Properties of the Villages v. FTC (11th Cir.) and to accede to the vacatur of the Non-Compete Clause Rule.” Federal Commerce Fee Information to Accede to Vacatur of Non-Compete Clause Rule (Sept. 5, 2025). The 2 appellate courts have granted the Fee’s requests for dismissal.
However the Fee’s dismissal of its appeals of the unfavorable choices with respect to the Rule, FTC Chairman Andrew Ferguson indicated that the Fee will not be backing off from an curiosity in non-competes. The Fee, he says, will “defend American staff by … patrolling … markets for particular anticompetitive conduct that hurts American … staff and taking unhealthy actors to court docket.” Assertion of Chairman Andrew N. Ferguson Joined by Commissioner Melissa Holyoak, Ryan LLC v. FTC, at 3 (Sept. 5, 2025).
For these companies who believed that the Rule and the Biden Administration’s enforcement actions previous to adoption of the Rule had been overbroad and undermined the legit use of non-compete agreements within the employer-employee relationship, the FTC’s persevering with curiosity on this situation might require important changes to the usage of non-compete agreements in employment contracts, and the Trump-led FTC might transfer extra aggressively than the Biden-led FTC to establish, examine and prohibit non-compete agreements. Employers who use non-compete agreements ought to evaluation the scope and breadth of these agreements to verify that they’re according to relevant regulation, together with the Fee’s aggressive interpretation of Part 5.
The latest settlement with Gateway Providers, Inc. (“Gateway” or the “firm”) means that the Fee will deal with non-compete agreements as “inherently suspect” and require employers to point out that any legit profit from the usage of non-compete agreements can’t be obtained by a much less restrictive various. This burden is inconsistent with Supreme Courtroom Sherman Act case regulation. The Fee has adopted an expansive and Fee-friendly interpretation of the appliance of Part 5’s prohibition of unfair strategies of competitors to non-compete agreements (15 U.S.C. §45(a)).
In Gateway, the Fee’s Criticism alleged that the corporate’s requirement that every one staff (besides these in California) comply with a 12-month post-employment covenant to not compete was an unfair methodology of competitors and prohibited by Part 5 of the FTC Act. In keeping with the FTC, Gateway entered into non-compete agreements with none individualized consideration of an worker’s position, utilizing them with extremely compensated executives and with staff compensated on an hourly foundation. Hourly staff “account[ed] for the overwhelming majority of [Gateway’s] U.S. primarily based staff topic to Non-Compete Agreements.” Evaluation to Support Public Remark, Gateway Providers, Inc. (launched Sept. 4, 2025), at 2.
The Fee’s proposed Determination and Order (“Proposed Order” or “Proposed D&O”) settling its grievance:
- Prohibits Gateway from coming into into, sustaining, implementing (or threatening to implement) a “Coated Non-Compete Settlement” with a “Coated Worker.”
- Prohibits Gateway from speaking to a Coated Worker or any potential or present employer of a Coated Worker that the Coated Worker is topic to a Coated Non-Compete Settlement.
- Prohibits Gateway from stopping a Coated Worker from “soliciting present or potential clients, besides with respect to these present or potential clients with whom the Coated Worker, within the final 12 months of his or her employment by [Gateway], had direct contract or personally offered service.”
- Requires Gateway to stop implementing all present Coated Non-Compete Agreements.
- Requires Gateway not require any Coated Worker who is a celebration to an present Coated Non-Compete Settlement in america to pay any charges or penalties regarding a Coated Non-Compete Settlement.
- Restricts the usage of non-competes within the sale of a enterprise by limiting their use to individuals with an fairness stake within the enterprise being bought.
- Incorporates substantial entry, compliance, discover, and reporting obligations, according to these of different FTC Orders.
- Runs for ten years.
A Coated Worker is:
A Individual employed by [Gateway], beforehand employed by [Gateway] through the earlier one 12 months previous to the date that the Order is issued, or within the technique of being employed by [Gateway], in america, together with third-party contractors. (Proposed D&O at § I.F.)
A Coated Non-Compete Settlement is:
An Settlement [agreement, contract, understanding, or provision or term thereof, whether express or implied, written or unwritten] between [Gateway] and a Coated Worker that restricts or restrains the best or means of the Coated Worker to hunt or settle for employment with any Individual [including corporations, partnerships, unincorporated entities, or a natural person], to function a enterprise, or in any other case compete with [Gateway]. (Proposed D&O at §I.G.)
A Coated Non-Compete Settlement doesn’t embrace:
Agreements containing a non-competition covenant entered into with [Gateway’s] director, officer, or senior worker, along side the grant of fairness or equity-based pursuits in [Gateway]. (Proposed D&O at §I.G.)
The Fee’s evaluation of the aggressive results of the Gateway non-compete agreements was restricted however differs solely barely from the evaluation articulated within the Biden Administration’s non-compete enforcement actions.[1] On the time, these enforcement actions had been criticized by the one Republican member of the Fee as insufficiently pleading an antitrust violation.[2] Whereas the grievance in Gateway doesn’t set forth per se illegality for non-competes beneath Part 5, the factual allegations which the Fee units forth for exhibiting aggressive hurt adequate to assist an unfair methodology of competitors declare may be very low.
- Gateway “acknowledge[d] that Non-Compete Agreements for workers cut back aggressive pressures” and seen them “as vital in suppressing competitors, not only for staff it’d terminate but additionally for these it supposed to retain.” Criticism, at ¶¶ 12-13.
- The corporate additionally used them “as a direct response to aggressive threats in a single market – responding to the entry of a competing pet cremation enterprise by executing Non-Compete Agreements with staff not already topic to [such] agreements, together with hourly staff.” Criticism, at ¶¶ 14. (The sooner complaints, referenced above, didn’t have an identical factual allegation.)
- The Fee’s grievance recognized the Non-Compete Agreements as “anticompetitive as a result of they alter[ed] the bargaining place between staff and Gateway,” “as a result of they’ve the doubtless function and impact of suppressing competitors by impeding the entry and enlargement of Gateway’s opponents within the pet cremation companies business,” and “have the doubtless function and impact of suppressing competitors by stopping or discouraging Gateway staff from opening competing pet cremation companies.” Complaint, at ¶¶ 12-17.
- The grievance alleges hurt to each staff – decrease wages and salaries, decreased advantages, much less favorable working situations, and private hardship to staff – and, arguably, hurt to present competitors within the pet cremation business. Evaluation to Support Public Remark, at 2 (decoding grievance).
Very comparable allegations, with equally restricted factual improvement, are included within the earlier complaints pursued by the Biden-led FTC.[3] The Fee additionally believed that “any legit goals” of the Non-Compete Agreements “may have been achieved by considerably much less restrictive means.” Criticism, Gateway, at ¶18. Within the earlier Fee enforcement actions, the Fee believed the identical.[4]
The Fee didn’t allege that Gateway had market energy in any labor market, nor in any market associated to its operation of pet cremation services. It didn’t allege that the markets that Gateway operated in had been concentrated. The earlier “glass container” complaints all alleged that the business was concentrated with substantial obstacles to entry and enlargement.[5] The Fee didn’t allege any of the respondents had market energy in any related marketplace for labor or for end-products (or companies) in these issues.
Maybe as a result of it couldn’t present or present indicia of market energy, the Fee didn’t allege that Gateway’s conduct was, or had the impact of, restraining competitors according to a Sherman Act Part 1 declare. On the information as offered within the grievance, the Fee couldn’t allege that the non-compete agreements allowed Gateway to acquire or preserve a monopoly place or created an affordable chance of monopolization of a related market, according to Part 2 of the Sherman Act. The Fee may solely allege a stand-alone violation of Part 5’s prohibition of unfair strategies of competitors – a declare inadequate to satisfy the necessities of the Sherman Act however according to the Coverage Assertion Relating to the Scope of Unfair Strategies of Competitors (Nov. 2022) launched by the Biden-led FTC. The identical place was adopted within the 4 employer-employee non-compete settlement enforcement actions by the FTC within the earlier administration.
Chairman Ferguson characterizes the evaluation the Fee will apply to non-compete agreements as just like the reasonableness take a look at utilized by state courts when assessing the lawfulness of non-compete agreements. Assertion of Chairman Andrew N. Ferguson Joined by Commissioner Melissa Holyoak, Within the Matter of Gateway Pet Memorial Providers (Sept. 4, 2025) at 5-6. This, he suggests, is just like antitrust regulation’s rule of motive evaluation. However the rule of motive typically requires an evaluation or exhibiting of market energy, both not directly by market shares, or instantly, by anticompetitive results in a related market, earlier than concluding a restraint in that market will not be cheap.[6] That is very true with respect to vertical agreements which are alleged to restraint commerce.[7] An employer-employee non-compete settlement is a vertical restraint.
A court docket, in reviewing a non-compete beneath the Sherman Act would doubtless require an worker to point out an anticompetitive impact in a marketplace for a category of labor. Right here, the Fee alleged no related market, and made no exhibiting of aggressive hurt. The Chairman and the Fee are making use of a decrease customary to the evaluation of non-compete agreements than is required in a Sherman Act declare.
Commissioner Meador, in a separate assertion, rejected the necessity for the Fee to point out market energy earlier than prohibiting the usage of non-compete agreements as an unfair methodology of competitors. Assertion of Commissioner Mark R. Meador, Within the Matter of Non-Compete Clauses (Sept. 5, 2025). In keeping with Commissioner Meador, Part 5 can attain conduct that has “adversarial financial penalties on … staff … absent conventional showings of market energy or structural market harms” and “provides a complementary method” that shifts the evaluation from a market energy evaluation and “exactly quantifiable financial results” to “a extra holistic evaluation” of “problematic incentives and outcomes.” It’s an evaluation “alongside” – not inside – “Part 1 and Part 2 of the Sherman Act.”
In effectuating this evaluation, Commissioner Meador places the burden on the respondent/defendant to defend the legality of the non-compete:
[A]n employer [the respondent/defendant] should exhibit that the noncompete is fairly essential to forestall hurt from materializing and, in flip, that narrower restraints (e.g., non-disclosure agreements, buyer non-solicitation clauses, asset use restrictions, mental property protections, and so on.) are inadequate to deal with the potential hurt to the employer’s enterprise pursuits. … This method could be extra akin to treating noncompetes as being topic to a ‘rebuttable presumption’ of illegality, with the employer bearing the burden to exhibit that the noncompete is fairly essential to attain legit enterprise pursuits and narrowly tailor-made towards that finish.
Like Chairman Ferguson’s method, Commissioner Meador’s method illustrates the Fee’s aggressiveness. Whereas Sherman Act case regulation is muddled on the query of who has the burden of exhibiting a restraint meets the least restrictive various take a look at, latest Supreme Courtroom regulation locations it on the plaintiff. In NCAA v. Alston and Ohio v. American Categorical, the Supreme Courtroom acknowledged that it’s the plaintiff’s burden, not the defendant’s burden.[8]
The framework the FTC is growing beneath Part 5 of the FTC Act shifts the burden to the respondent/defendant to point out that there isn’t any much less restrictive various to the usage of a non-compete settlement. That is more likely to be tough, particularly within the case of non-senior executives and lower-wage staff.
[1] See Criticism, Anchor Glass Container Corp. (Might 18, 2023); Criticism, Prudential Safety, Inc. (Feb. 23, 2023); Criticism, Ardagh Group S.A. (Feb. 21, 2023); and Criticism, O-I Glass Inc. (Feb. 21, 2023).)
[2] Dissenting Assertion of Commissioner Christine S. Wilson, Anchor Glass Container Corp. (Mar. 14, 2023) ((grievance alleges that the usage of non-compete agreements tends to hurt competitors and staff, however fails to supply information to assist the hypothesized end result,” “doesn’t make factual allegations concerning the shortcoming of a competing rival within the glass container business to enter or broaden,” and “doesn’t establish a related marketplace for explicit varieties of labor and fails to allege a market impact on wages or different phrases of employment”); Dissenting Assertion of Commissioner Christine S. Wilson, Prudential Safety (Jan. 4. 2023) at 1-2 (“grievance provides no proof of any anticompetitive impact in any related market” and provides solely a conclusory assertion that any attainable legit goals … may have been achieved by considerably means”); Dissenting Assertion of Commissioner Christine S. Wilson, O-I Glass and Ardagh Group (Jan. 4, 2023) at 3 (“the complaints described intimately the obstacles to entry within the glass container business however didn’t reference the issue of acquiring skilled staff” and “don’t establish a related marketplace for expert labor as an enter to glass container manufacturing, and fail to allege a market impact on wages or different phrases of employment”).)
[3] See Criticism, Anchor Glass Container Corp. (Might 18, 2023) at ¶ 10 (tendency or doubtless impact of harming competitors, shoppers and staff by impeding the entry and enlargement of rivals within the glass container business, decreasing employer mobility and inflicting decrease wages and salaries, decreased advantages, much less favorable working situations, and private hardship to staff); Criticism, Ardagh Group S.A. (Feb. 21, 2023) at ¶ 10 (similar); Criticism, O-I Glass Inc. (Feb. 21, 2023) at ¶ 8 (similar); and Evaluation to Support Public Remark, O-I Glass and Ardagh Group at 4 (“Restrictions usually outcome from employers’ outsized bargaining energy in comparison with that of staff. And, by decreasing staff’ negotiating leverage vis-à-vis their present employers, Non-Compete Restrictions are likely to impair employee’s means to barter for higher pay and dealing situations.”). See additionally Criticism, Prudential Safety, Inc. (Feb. 23, 2023) at ¶¶ 24,25 (use of non-compete agreements interfered with competitors and compelled staff to just accept considerably decrease wages and fewer favorable working situations; due to the unequal bargaining energy between employer and worker, employer was capable of impose onerous non-compete agreements on staff). In Gateway, the grievance alleged that the non-compete agreements altered the bargaining energy between employer and staff; the sooner complaints had been barely completely different, alleging that there was unequal bargaining energy between employers and staff, and that allowed the employer to impose non-compete agreements on the worker.
[4] See Criticism, Anchor Glass at ¶ 11; Criticism, Ardagh Group at ¶ 11; Criticism, O-I Glass at ¶9; Criticism, Prudential Safety, at ¶ 26.
[5] See Criticism, Anchor Glass at ¶ 8; Criticism, Ardagh Group at ¶ 8; Criticism, O-I Glass at ¶6.
[6] NCAA v. Alston, 594 U.S. 69 (2021) (“Figuring out whether or not a restraint is undue for functions of the Sherman Act presumptively requires what we’ve got described as a rule of motive evaluation. That method of research typically requires a court docket to conduct a fact-specific evaluation of market energy and market construction to evaluate a challenged restraint’s precise impact on competitors.”).
[7] Ohio v. American Categorical, 585 US 529, 541 (2018) (vertical restraints are assessed beneath the rule of motive, and “the plaintiff has the preliminary burden to show that the challenged restraint has a considerable anticompetitive impact that harms shoppers within the related market”).
[8] NCAA v. Alston, 594 U.S. 69, 100 (2021) (the district court docket required the plaintiff student-athletes “to point out that there are considerably much less restrictive various guidelines that will [allow the defendant, the NCAA, to] obtain the identical procompetitive impact because the challenged guidelines,” as corresponds to the third step of the American Categorical framework) and Ohio v. American Categorical, 585 US 529, 542 (2018) (“burden shifts again to the plaintiff to exhibit that the procompetitive efficiencies could possibly be moderately achieved by much less anticompetitive means”).)
Bilal Sayyed is a Counsel at Cadwalader, Wickersham & Taft LLP.
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