Notice2023-00695
Glass Container Non-Compete Restrictions; Analysis of Agreements Containing Consent Orders To Aid Public Comment
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
January 17, 2023
Issuing agencies
Federal Trade Commission
Abstract
The consent agreement in this matter settles alleged violations of federal law prohibiting unfair methods of competition. The attached Analysis of Proposed Consent Orders to Aid Public Comment describes both the allegations in the complaint and the terms of the consent orders--embodied in the consent agreement--that would settle these allegations.
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<title>Federal Register, Volume 88 Issue 10 (Tuesday, January 17, 2023)</title>
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[Federal Register Volume 88, Number 10 (Tuesday, January 17, 2023)]
[Notices]
[Pages 2618-2624]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-00695]
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FEDERAL TRADE COMMISSION
[File No. 211 0182]
Glass Container Non-Compete Restrictions; Analysis of Agreements
Containing Consent Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement; request for comment.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair methods of competition.
The attached Analysis of Proposed Consent Orders to Aid Public Comment
describes both the allegations in the complaint and the terms of the
consent orders--embodied in the consent agreement--that would settle
these allegations.
DATES: Comments must be received on or before February 16, 2023.
ADDRESSES: Interested parties may file comments online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Please write: ``Glass
Container Non-compete Restrictions; File No. 211 0182'' on your comment
and file your comment online at <a href="https://www.regulations.gov">https://www.regulations.gov</a> by
following the instructions on the web-based form. If you prefer to file
your comment on paper, please mail your comment to the following
address: Federal Trade Commission, Office of the Secretary, 600
Pennsylvania Avenue NW, Suite CC-5610 (Annex Q), Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Kathleen Clair (202-326-3435), Bureau
of Competition, Federal Trade Commission, 400 7th Street SW,
Washington, DC 20024.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34,
notice is hereby given that the above-captioned consent agreement
containing a consent order to cease and desist, having been filed with
and accepted, subject to final approval, by the Commission, has been
placed on the public record for a period of 30 days. The following
Analysis of Agreement Containing Consent Orders to Aid Public Comment
describes the terms of the consent agreement and the allegations in the
complaint. An electronic copy of the full text of the consent agreement
package can be obtained from the FTC website at this web address:
<a href="https://www.ftc.gov/news-events/commission-actions">https://www.ftc.gov/news-events/commission-actions</a>.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before February 16,
2023. Write ``Glass Container Non-compete Restrictions; File No. 211
0182'' on your comment. Your comment--including your name and your
state--will be placed on the public record of this proceeding,
including, to the extent practicable, on the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website.
Due to protective actions in response to the COVID-19 pandemic and
the agency's heightened security screening, postal mail addressed to
the Commission will be delayed. We strongly encourage you to submit
your comments online through the <a href="https://www.regulations.gov">https://www.regulations.gov</a> website.
If you prefer to file your comment on paper, write ``Glass
Container Non-compete Restrictions; File No. 211 0182'' on your comment
and on the envelope, and mail your comment to the following address:
Federal Trade Commission, Office of the Secretary, 600 Pennsylvania
Avenue NW, Suite
[[Page 2619]]
CC-5610 (Annex Q), Washington, DC 20580.
Because your comment will be placed on the publicly accessible
website at <a href="https://www.regulations.gov">https://www.regulations.gov</a>, you are solely responsible for
making sure your comment does not include any sensitive or confidential
information. In particular, your comment should not include sensitive
personal information, such as your or anyone else's Social Security
number; date of birth; driver's license number or other state
identification number, or foreign country equivalent; passport number;
financial account number; or credit or debit card number. You are also
solely responsible for making sure your comment does not include
sensitive health information, such as medical records or other
individually identifiable health information. In addition, your comment
should not include any ``trade secret or any commercial or financial
information which . . . is privileged or confidential''--as provided by
Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2),
16 CFR 4.10(a)(2)--including competitively sensitive information such
as costs, sales statistics, inventories, formulas, patterns, devices,
manufacturing processes, or customer names.
Comments containing material for which confidential treatment is
requested must be filed in paper form, must be clearly labeled
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular,
the written request for confidential treatment that accompanies the
comment must include the factual and legal basis for the request and
must identify the specific portions of the comment to be withheld from
the public record. See FTC Rule 4.9(c). Your comment will be kept
confidential only if the General Counsel grants your request in
accordance with the law and the public interest. Once your comment has
been posted on <a href="https://www.regulations.gov">https://www.regulations.gov</a>--as legally required by FTC
Rule 4.9(b)--we cannot redact or remove your comment from that website,
unless you submit a confidentiality request that meets the requirements
for such treatment under FTC Rule 4.9(c), and the General Counsel
grants that request.
Visit the FTC website at <a href="https://www.ftc.gov">https://www.ftc.gov</a> to read this document
and the news release describing this matter. The FTC Act and other laws
the Commission administers permit the collection of public comments to
consider and use in this proceeding, as appropriate. The Commission
will consider all timely and responsive public comments it receives on
or before February 16, 2023. For information on the Commission's
privacy policy, including routine uses permitted by the Privacy Act,
see <a href="https://www.ftc.gov/site-information/privacy-policy">https://www.ftc.gov/site-information/privacy-policy</a>.
Analysis of Agreements Containing Consent Orders To Aid Public Comment
I. Introduction
The Federal Trade Commission has accepted, subject to final
approval, two consent agreements with, respectively, Ardagh Group S.A.,
Ardagh Glass Inc., and Ardagh Glass Packaging Inc. (collectively,
``Ardagh'') and O-I Glass Inc. (``O-I''). Ardagh and O-I (collectively,
``the Manufacturers'') each manufacture and sell in the United States
glass containers used for food and beverage packaging and employ
workers at multiple facilities within the United States for this
purpose. The consent agreements settle charges that the Manufacturers
violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45,
through their use of post-employment covenants not to compete (``Non-
Compete Restrictions''). A Non-Compete Restriction is a term that,
after a worker has ceased working for an employer, restricts the
worker's freedom to accept employment with a competing business, to
form a competing business, or otherwise to compete with the employer.
The complaints allege that each of these companies imposed Non-Compete
Restrictions on employees across a variety of positions, including
workers whose labor is an important input in the glass container
manufacturing process. The complaints allege that this conduct has a
tendency or likelihood to limit workers' mobility, to impede rivals'
access to the restricted employees' labor, and thus to harm workers,
consumers, competition, and the competitive process. As such, the
complaints allege that each company has engaged in an unfair method of
competition in violation of section 5 of the FTC Act. The proposed
orders have been placed on the public record for 30 days in order to
receive comments from interested persons. Comments received during this
period will become part of the public record. After 30 days, the
Commission will again review the consent agreements and the comments
received and will decide whether it should withdraw from the consent
agreements and take appropriate action or make the proposed orders
final. The purpose of this analysis is to facilitate public comment on
the proposed orders. It is not intended to constitute an official
interpretation of the complaints, the consent agreements, or the
proposed orders, or to modify their terms in any way.
II. The Complaints
The complaints make the following allegations. The glass containers
that Ardagh and O-I manufacture and sell are purchased primarily by
companies that sell food, beer, non-alcoholic beverages, and wine and
spirits. The glass container industry in the United States is highly
concentrated and is characterized by substantial barriers to entry and
expansion. Among these barriers, it is difficult to identify and employ
personnel with skills and experience in glass container manufacturing.
Each of the Manufacturers has imposed Non-Compete Restrictions on
employees across a variety of positions. These restrictions typically
required that, for either one or two years following the conclusion of
the worker's employment with the Manufacturer, the worker may not be
employed by a competing business in the United States. At the outset of
the Commission's investigation, over 700 employees of Ardagh and over
1,000 employees of O-I were subject to such restrictions, including
employees who work with the glass container plants' furnaces and
forming equipment and in other glass production, engineering, and
quality assurance roles.
The complaints further allege that each company's use of the
challenged Non-Compete Restrictions has the tendency or likely effect
of harming competition, consumers, and workers, including by: (i)
impeding the entry and expansion of rivals in the glass container
industry, (ii) reducing employee mobility, and (iii) causing lower
wages and salaries, reduced benefits, less favorable working
conditions, and personal hardship to employees.
III. Legal Analysis
Section 5 of the FTC Act prohibits ``unfair methods of
competition.'' \1\ Congress empowered the FTC to enforce section 5's
prohibition on ``unfair methods of competition'' to ensure that the
antitrust laws could adapt to changing circumstances and to address the
full range of practices that may undermine competition and the
competitive process.\2\ The Commission
[[Page 2620]]
and federal courts have historically interpreted section 5 to prohibit
conduct that is inconsistent with the policies or the spirit of the
antitrust laws, even if that conduct would not violate the Sherman or
Clayton Acts.\3\
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\1\ 15 U.S.C. 45(a).
\2\ E.g., Atl. Refining Co. v. FTC, 381 U.S. 357, 367 (1965)
(``The Congress intentionally left development of the term `unfair'
to the Commission rather than attempting to define the many and
variable unfair practices which prevail in commerce.'') (internal
citations and quotation marks omitted); see also Fed. Trade Comm'n,
Policy Statement Regarding the Scope of Unfair Methods of
Competition Under Section 5 of the Federal Trade Commission Act,
Commission File No. P221202 (Nov. 10, 2022) [hereinafter ``FTC
Section 5 Policy Statement (2022)''], at 5 (``Congress struck an
intentional balance when it enacted the FTC Act. It allowed the
Commission to proceed against a broader range of anticompetitive
conduct than can be reached under the Clayton and Sherman Acts, but
it did not establish a private right of action under Section 5, and
it limited the preclusive effects of the FTC's enforcement actions
in private antitrust cases under the Sherman and Clayton Acts.'').
\3\ E.g., FTC v. Motion Picture Advert. Serv. Co., 344 U.S. 392,
394-95 (1953) (``The `Unfair methods of competition', which are
condemned by [Section] 5(a) of the [FTC] Act, are not confined to
those that were illegal at common law or that were condemned by the
Sherman Act. Congress advisedly left the concept flexible to be
defined with particularity by the myriad of cases from the field of
business.'') (internal citations omitted); Fashion Originators'
Guild of Am. v. FTC, 312 U.S. 457, 463 (1941) (Commission may
``suppress'' conduct whose ``purpose and practice . . . runs counter
to the public policy declared in the Sherman and Clayton Acts'');
FTC v. Brown Shoe, 384 U.S. 316, 321 (1966) (Commission's power
reaches ``practices which conflict with the basic policies of the
Sherman and Clayton Acts even though such practices may not actually
violate these laws''); E.I. du Pont de Nemours & Co. v. FTC (Ethyl),
729 F.2d 128, 136-37 (2d Cir. 1984) (Commission may bar ``conduct
which, although not a violation of the letter of the antitrust laws,
is close to a violation or is contrary to their spirit''); see also
FTC v. Ind. Fed'n of Dentists, 476 U.S. 447, 454 (1986); FTC v.
Sperry & Hutchinson Co., 405 U.S. 233, 244 (1972); FTC v. R.F.
Keppel & Bros., Inc., 291 U.S. 304, 309-10 (1934).
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The Commission's recent Section 5 Policy Statement describes the
most significant general principles concerning whether conduct is an
unfair method of competition.\4\ A person violates section 5 by (1)
engaging in a method of competition (2) that is unfair--i.e., conduct
that ``goes beyond competition on the merits.'' \5\ A method of
competition is ``conduct undertaken by an actor in the marketplace''
that implicates competition, whether directly or indirectly.\6\ Conduct
is unfair if (a) it is ``coercive, exploitative, collusive, abusive,
deceptive, predatory,'' ``involve[s] the use of economic power of a
similar nature,'' or is ``otherwise restrictive and exclusionary,'' and
(b) ``tend[s] to negatively affect competitive conditions'' for
``consumers, workers, or other market participants''--for example by
impairing the opportunities of market participants, including potential
entrants; interfering with the normal mechanisms of competition;
limiting choice; reducing output; reducing innovation; or reducing
competition between rivals.\7\ The two parts of this test for
unfairness ``are weighed according to a sliding scale'': where there is
strong evidence for one part of the test, ``less may be necessary'' to
satisfy the other part.\8\ In appropriate circumstances, conduct may be
condemned under section 5 without defining a relevant market, proving
market power, or showing harm through a rule of reason analysis.\9\
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\4\ FTC Section 5 Policy Statement (2022), supra note 2.
\5\ Id. at 8-10.
\6\ Id. at 8.
\7\ Id. 8-10.
\8\ Id. at 9.
\9\ Id. at 10.
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In addition, the Commission may consider any asserted
justifications for a particular practice.\10\ Any such inquiry would
focus on ``[t]he nature of the harm'' caused by the method of
competition: ``the more facially unfair and injurious the harm, the
less likely it is to be overcome by a countervailing justification of
any kind.'' \11\ Unlike ``a net efficiencies test or a numerical cost-
benefit analysis,'' this analysis examines whether ``purported benefits
of the practice'' redound to the benefit of other market participants
rather than the respondent.\12\ Established limits on defenses and
justifications under the Sherman Act ``apply in the Section 5 context
as well,'' including that the justifications must be cognizable, non-
pretextual, and narrowly tailored.\13\
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\10\ Id. at 10-12 (``There is limited caselaw on what, if any,
justifications may be cognizable in a standalone Section 5 unfair
methods of competition case, and some courts have declined to
consider justifications altogether.'').
\11\ Id. at 11.
\12\ Id.
\13\ Id. at 11-12.
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As described below, the factual allegations in the complaints would
support concluding that each Respondent's use of the challenged Non-
Compete Restrictions is an unfair method of competition under section
5. First, each Respondent's use of Non-Compete Restrictions is a method
of competition. The challenged Non-Compete Restrictions are not mere
``condition[s] of the marketplace, not of the respondent's making.''
\14\ Rather, these are contract provisions that each Respondent
required its employees to enter into, which, by their terms, restricted
the employment options available to affected workers and therefore
implicated competition for labor.
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\14\ See id. at 8.
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Second, each Respondent's use of the challenged Non-Compete
Restrictions ``goes beyond competition on the merits'' \15\ because it
is coercive, exploitative, exclusionary, and restrictive as these terms
are used in the FTC Section 5 Policy Statement. Non-Compete
Restrictions typically result from employers' outsized bargaining power
compared to that of employees. And, by reducing workers' negotiating
leverage vis-[agrave]-vis their current employers, Non-Compete
Restrictions tend to impair workers' ability to negotiate for better
pay and working conditions.\16\ The complaints here also allege that
the challenged Non-Compete Restrictions had a tendency or likely effect
of impeding the entry and expansion of rivals, as discussed below. As
such, they are exclusionary in a manner that violates the spirit and
policies of the Sherman Act.\17\ Finally, while competition on the
merits ``may include, for example . . . attracting employees and
workers through the offering of better employment terms,'' \18\ Non-
Compete Restrictions, by contrast, create a legal impediment that
restricts workers from leaving their employment even if they find more
attractive employment terms elsewhere. For this reason, Non-Compete
Restrictions have long been considered proper subjects for
[[Page 2621]]
scrutiny under the nation's antitrust laws.\19\
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\15\ See id. at 8.
\16\ See, e.g., Dep't of the Treasury, Report, Non-compete
Contracts: Economic Effects and Policy Implications (Mar. 2016) at
10, <a href="https://home.treasury.gov/system/files/226/Non_Compete_Contracts_Econimic_Effects_and_Policy_Implications_MAR2016.pdf">https://home.treasury.gov/system/files/226/Non_Compete_Contracts_Econimic_Effects_and_Policy_Implications_MAR2016.pdf</a> (``When workers are legally prevented from accepting
competitors' offers, those workers have less leverage in wage
negotiations [with their current employer.]''). The strength of a
worker's negotiating position with their current employer is largely
based on the suitability of their next-best alternative employer
(i.e., the alternative employer that would offer the employee the
best combination of wages and working conditions, net of any
switching costs). Competing employers who fall within the scope of a
Non-Compete Agreement, typically employers in the same industry and
geographic area--are often the strongest competitor to a worker's
current employer for that worker's labor. Such employers typically
place the highest value on the worker's industry-specific skills,
and workers generally face lower switching costs when moving to such
employers. See, e.g., David J. Balan, Labor Non-Compete Agreements:
Tool for Economic Efficiency, or Means to Extract Value from
Workers? 15 (2021), <a href="https://equitablegrowth.org/working-papers/labor-non-compete-agreements-tool-for-economic-efficiency-or-means-to-extract-value-from-workers/">https://equitablegrowth.org/working-papers/labor-non-compete-agreements-tool-for-economic-efficiency-or-means-to-extract-value-from-workers/</a> (noting that workers often ``are
barred by the non-compete from [switching to] the[ir] best available
alternative jobs'').
\17\ See generally, e.g., ZF Meritor v. Easton Corp., 696 F.3d
254, 278-79 (3d Cir. 2012); McWane, Inc. v. Fed. Trade Comm'n, 783
F.3d 814, 835 (11th Cir. 2005); Tampa Elec. Co. v. Nashville Coal
Co., 365 U.S. 320, 328 (1961); Geneva Pharms. Tech. Corp. v. Barr
Labs., 386 F.3d 485, 509 (2d Cir. 2004); see also FTC Section 5
Policy Statement (2022), at 8, 9, 12.
\18\ FTC Section 5 Policy Statement (2022), supra note 2, at 8-
9.
\19\ See, e.g., U.S. v. Am. Tobacco Co., 221 U.S. 106 (1911);
Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d 1057, 1082 (2d Cir.
1977); Bradford v. N.Y. Times Co., 501 F.2d 51 (2d Cir. 1974);
Golden v. Kentile Floors, Inc., 512 F.2d 838 (5th Cir. 1975); U.S.
v. Empire Gas Corp., 537 F.2d 296 (8th Cir. 1976); Aydin Corp. v.
Loral Corp., 718 F.2d 897 (9th Cir. 1983); Consultants & Designers,
Inc. v. Bulter Serv. Grp., Inc., 720 F.2d 1553 (11th Cir. 1983).
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Third, the factual allegations in the complaints support a finding
that each Respondent's challenged conduct has the tendency or likely
effect of negatively affecting competition in the U.S. glass container
industry. Specifically, the complaints allege that (i) each of the
Respondents required employees across a variety of positions, including
salaried employees who work with the glass container plants' furnace
and forming equipment and in other glass production engineering, and
quality assurance roles, to refrain from working for competing glass
manufacturing companies for at least one year after the conclusion of
their employment, (ii) the ability to identify and employ personnel
with skill and experience in glass container manufacturing is a
substantial barrier to entry and expansion, and (iii) the challenged
restrictions have a tendency or likely effect of impeding the entry and
expansion of rivals.
Fourth, the factual allegations in the complaints support a finding
that each Respondent's challenged conduct has the tendency or likely
effect of negatively affecting competitive conditions affecting workers
in the U.S. glass container industry. In well-functioning labor
markets, workers compete to attract employers, and employers compete to
attract workers. For example, workers may attract potential employers
by offering different skills and experience levels. Employers may
attract potential employees by offering higher wages, better hours, a
more convenient job location, more autonomy, more benefits, or a
different set of job responsibilities. Because factors beyond price
(wages) are important to both workers and employers in the job context,
labor markets are ``matching markets'' as opposed to ``commodity
markets.'' \20\
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\20\ See generally David H. Autor, Wiring the Labor Market, 15
J. of Econ. Perspectives 25-40 (2001); Enrico Moretti, Local Labor
Markets, in 4b Handbook of Labor Economics 1237-1313 (2011).
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In general, in matching markets, higher-quality matches tend to
result when both sides--here, workers and employers--have more options
available to them.\21\ Having more options on both sides could, for
example, allow for matching workers with jobs in which their specific
skills are more valued, the hours demanded better fit their
availability, or their commutes are shorter and more efficient. Matches
could also be better in that various employers' compensation packages,
which differ in terms of pay and benefits, are coupled with employees
who value those offerings more and will, for example, tend to stay at
those jobs longer as a result. Competition for labor allows for job
mobility and benefits workers by allowing them to accept new
employment, create or join new businesses, negotiate better terms in
their current jobs, and generally pursue career advancement as they see
fit.\22\
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\21\ See, e.g., Dep't of the Treasury, Report, The State of
Labor Market Competition (Mar. 7, 2022) at 5-7, <a href="https://home.treasury.gov/system/files/136/State-of-Labor-Market-Competition-2022.pdf">https://home.treasury.gov/system/files/136/State-of-Labor-Market-Competition-2022.pdf</a>; Dep't of the Treasury, Report, Non-compete
Contracts: Economic Effects and Policy Implications, supra note 16,
at 3-5, 22-23.
\22\ See, e.g., Cynthia L. Estlund, Between Rights and Contract:
Arbitration Agreements and Non-Compete Covenants As A Hybrid Form of
Employment Law, 155 U. Pa. L. Rev. 379, 407 (2006).
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By preventing workers and employers from freely choosing their
preferred jobs and candidates, respectively, Non-Compete Restrictions
tend to impede and undermine competition in labor markets.\23\ Research
suggests that Non-Compete Restrictions measurably reduce worker
mobility,\24\ lower workers' earnings,\25\ and increase racial and
gender wage gaps.\26\ At the individual level, a Non-Compete
Restriction can force a worker who wishes to leave a job into a
difficult choice: stay in the current position despite being able to
receive a better job elsewhere, take a position with a competitor at
the risk of being found out and sued, or leave the industry entirely.
In this way, Non-Compete Restrictions tend to leave workers with fewer
and lower-quality competing job options,\27\ thereby reducing workers'
bargaining leverage with their current employers and resulting in lower
wages, slower wage growth, and less favorable working conditions.\28\
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\23\ See, e.g., Dep't of the Treasury, Report, The State of
Labor Market Competition, supra note 21, at 5-7.
\24\ Matthew S. Johnson, Kurt Lavetti, & Michael Lipsitz, The
Labor Market Effects of Legal Restrictions on Worker Mobility 2
(2020), <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3455381">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3455381</a>;
Evan Starr, J.J. Prescott, & Norm Bishara, The Behavioral Effects of
(Unenforceable) Contracts, 36 J. L., Econ., & Org. 633, 652 (2020);
Evan Starr, Justin Frake, & Rajshree Agarwal, Mobility Constraint
Externalities, 30 Org. Sci. 961, 963-65, 977 (2019); Matt Marx,
Deborah Strumsky, & Lee Fleming, Mobility, Skills, and the Michigan
Non-Compete Experiment, 55 Mgmt. Sci. 875, 884 (2009).
\25\ Michael Lipsitz & Evan Starr, Low-Wage Workers and the
Enforceability of Noncompete Agreements, 68 Mgmt. Sci. 143, 144
(2021); Johnson, Lavetti, & Lipsitz, supra note 24.
\26\ Johnson, Lavetti, & Lipsitz, supra note 24.
\27\ See, e.g., Jessica Jeffers, The Impact of Restricting Labor
Mobility on Corporate Investment and Entrepreneurship 21-22 (Dec.
24, 2019), <a href="https://ssrn.com/abstract=3040393">https://ssrn.com/abstract=3040393</a>.
\28\ See, e.g., Johnson, Lavetti, & Lipsitz, supra note 24;
David J. Balan, Labor Practices Can be an Antitrust Problem Even
When Labor Markets are Competitive, CPI Antitrust Chronicle (May
2020) at 8.
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Here, the complaints allege that the challenged Non-Compete
Restrictions have the tendency or likely effect of reducing employee
mobility and causing lower wages and salaries, reduced benefits, less
favorable working conditions, and personal hardship to employees.
Finally, as the complaints allege, any legitimate objectives of
Respondents' use of the challenged Non-Compete Restrictions could be
achieved through significantly less restrictive means, including, for
example, by entering confidentiality agreements that prohibit employees
and former employees from disclosing company trade secrets and other
confidential information. Indeed, each of the Respondents nullified the
challenged Non-Compete Restrictions after learning of the Commission's
investigation, apparently without incurring any notable impediment to
their ability to achieve any legitimate business objectives.
IV. Proposed Orders
The proposed orders seek to remedy the Respondents' unfair methods
of competition. Section II of each proposed order prohibits the
Respondent from entering or attempting to enter, maintaining or
attempting to maintain, or enforcing or attempting to enforce a Non-
Compete Restriction with an Employee, or communicating to an Employee
or a prospective or current employer of that Employee that the Employee
is subject to a Non-Compete Restriction.\29\ Paragraph IV.A requires
the Respondent to take all steps necessary to void and nullify all
existing Non-Compete Restrictions with Employees within 30 days after
the date on which the proposed order is issued.\30\
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\29\ See Decision & Order ] II.
\30\ Id. ] IV.A.
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The proposed orders also contain provisions designed to ensure
compliance. Paragraph III.A of each proposed order requires the
Respondent to provide written notice to Employees that have or recently
had a Non-Compete Restriction that (i) the restriction is null and
void, and (ii) the Employees may, after they stop working
[[Page 2622]]
for Respondent, seek or accept jobs with any other company or person,
run their own businesses, and compete with the Respondent.\31\
Paragraph III.B requires Respondents to notify new Employees that they
will not be subject to Non-Compete Restrictions by including a
specified notice in the documentation provided to new Employees upon
hire.\32\
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\31\ Id. ] III.A; App'x B.
\32\ Id. ] III.B.
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Other paragraphs contain standard provisions regarding compliance
reports, notice of changes in Respondents, and access for the FTC to
documents and personnel.\33\ The proposed orders' prohibitions apply
only to Respondents' Employees within the United States, and the term
of each proposed order is twenty years.\34\
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\33\ Id. ]] IV-VII.
\34\ Id. ] IX.
By direction of the Commission, Commissioner Wilson dissenting.
April J. Tabor,
Secretary.
Statement of Chair Lina M. Khan Joined by Commissioner Rebecca Kelly
Slaughter and Commissioner Alvaro M. Bedoya
Today the Commission announced actions against several companies
and their executives for imposing noncompete restrictions on their
workers. As noted in the complaints, 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. I am deeply grateful
to our talented staff in the Bureau of Competition for their thorough
and lengthy efforts to investigate and resolve these matters. The
relief secured through these actions will benefit both workers and
competition. Though all three actions target the unlawful use of
noncompetes, they also reveal the distinct grounds on which noncompetes
can be found to violate Section 5.
The Commission's action against Prudential and its two owners
alleged that the firm's use of noncompetes against the security guards
it employed was coercive, exploitative, and tended to negatively affect
competitive conditions. As stated in the complaint, Prudential required
its 1,000+ security guards to sign noncompetes as a condition of
employment, preventing them from working for a competitor within a 100-
mile radius and for two years after departing. The security guards
earned low wages, with many earning slightly above minimum wage, and
received minimal training from Prudential. The company also included in
its employees' contract a ``liquidated damages'' clause, which required
that employees pay Prudential a $100,000 penalty for violating the
noncompete. Although a Michigan state court held that these noncompetes
were unreasonable and unenforceable,\1\ Prudential continued to
repeatedly impose them. It also sued both former employees who had
departed for jobs with rivals as well as the rival firms themselves,
ultimately blocking workers from switching to jobs with higher wages.
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\1\ Prudential Security, Inc. v. Pack, No. 18-015809-CB (Mich.
Cir. Ct. Dec. 13, 2018).
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The FTC's order requires Prudential to terminate its noncompetes
with all the security guards it had hired and to actively notify all
employees that these noncompete clauses are now null and void. Notably,
Prudential recently exited the security guard business and sold nearly
all of its assets. Although the new owner of Prudential's assets does
not use noncompetes, the relief that FTC has secured is critical for
addressing the harmful effects of Prudential's practices. For one,
Prudential's history of aggressive enforcement could be reasonably
expected to chill former employees' efforts to work in the security
business and to dissuade rivals from hiring them.\2\ Workers earning
minimum wage would be rational to avoid even the slightest risk of
facing a $100,000 penalty and associated lawsuits, and there is no
guarantee that Prudential's former employees would even know that
Prudential had exited the market and that the new owner states it has
no plans to enforce the prior noncompetes. The order also covers
Prudential's former owners, Greg Wier and Matthew Keywell, as well as
any future business that they control-- ensuring that they cannot
repeat their coercive and exploitative tactics.
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\2\ In fact, there is considerable evidence that noncompetes
hinder worker mobility even in states that do not enforce them. See,
e.g., Evan Starr, J.J. Prescott & Norman Bishara, The Behavioral
Effects of (Unenforceable) Contracts, 36 J.L. Econ. Org. 633 (2020).
---------------------------------------------------------------------------
The Commission's actions against Owens-Illinois and Ardagh,
meanwhile, target noncompetes in the highly concentrated glass
manufacturing sector. Three firms dominate nationally, and these
incumbents imposed noncompete restrictions on, collectively, thousands
of employees, including those working in key glass production,
engineering, and quality assurance roles. As the FTC's complaint notes,
these noncompetes locked up highly specialized workers, tending to
impede the entry and expansion of rivals and tending to negatively
affect competitive conditions in violation of Section 5. While I cannot
disclose confidential information uncovered through this investigation,
the noncompetes used by Owens-Illinois and Ardagh had the potential to
deprive aspiring entrants of access to a critical talent pool, thereby
impeding entry into a relatively consolidated industry that has
experienced tight supply and unmet customer demand. Moreover, when a
small number of dominant players engage in the same restrictive
practices, the negative effects can compound. Section 5 of the FTC Act
is uniquely designed to address this type of conduct, where the
cumulative effect of parallel actions can in the aggregate tend to
negatively affect competitive conditions.\3\ The relief secured by the
FTC prohibits the firms from imposing, attempting to impose, enforcing,
or threatening to enforce a noncompete with covered workers. The firms
must also provide written notice that the noncompetes are null and
void.
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\3\ Fed. Trade Comm'n, Policy Statement Regarding the Scope of
Unfair Methods of Competition Under Section 5 of the Federal Trade
Commission Act (Nov. 10, 2022) [hereinafter ``Section 5 Policy
Statement''], <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf</a>.
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My colleague Commissioner Wilson dissents from these actions,
claiming that they mark a ``radical departure'' from precedent.\4\
Respectfully, I disagree.\5\ The Supreme Court has
[[Page 2623]]
affirmed the Commission's authority to challenge ``inherently
coercive'' practices like those alleged against Prudential.\6\ And it
is clear that the widespread use of noncompetes in a highly
concentrated industry--to the point where labor mobility is so reduced
that entry may be thwarted--tends to negatively affect competitive
conditions in ways that Section 5 is designed to prevent.\7\
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\4\ Commissioner Wilson argues that our enforcement actions are
in direct tension with a Seventh Circuit decision, Snap-On Tools
Corp. v. FTC, 321 F.2d 825 (7th Cir. 1963). Snap-On Tools is
distinguishable on several fronts, including the fact that it
concerned noncompetes used in the business-to-business context, not
those used by an employer to restrict its workers. Additionally,
while the majority stated that it is ``not prepared to say that [the
termination restriction] is a per se violation of the antitrust
laws,'' id. at 837, the Commission did not argue for a per se rule
and so the issue was not litigated. Id. at 830-31; id. at 839
(Hastings, C.J., dissenting).
\5\ It is important not to conflate recent Commission practice,
which held off on enforcing the full scope of Section 5, with
longstanding legal precedent, which firmly affirms that Section 5
reaches beyond the Sherman and Clayton Acts. Reactivating Section 5
and ensuring that our approach is fully faithful to the legal
authorities that Congress gave us is critical for promoting the rule
of law and for ensuring the democratic legitimacy of our work. See
Section 5 Policy Statement, supra note 2 (reviewing and citing over
80 cases where the Commission pled violations of standalone Section
5); Statement of Chair Lina M. Khan Joined by Commissioner Rebecca
Kelly Slaughter and Commissioner Alvaro M. Bedoya on the Adoption of
the Statement of Enforcement Policy Regarding Unfair Methods of
Competition Under Section 5 of the FTC Act (Nov. 10, 2022), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/Section5PolicyStmtKhanSlaughterBedoyaStmt.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/Section5PolicyStmtKhanSlaughterBedoyaStmt.pdf</a>; Remarks of Chair Lina
M. Khan As Prepared for Delivery at Fordham Annual Conference on
International Antitrust Law & Policy (Sept. 16, 2022), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/KhanRemarksFordhamAntitrust20220916.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/KhanRemarksFordhamAntitrust20220916.pdf</a>.
\6\ Atl. Refin. Co. v. FTC, 381 U.S. 357 (1965); FTC v. Texaco,
Inc., 393 U.S. 223 (1968); E.I. du Pont de Nemours & Co. v. FTC
(Ethyl), 729 F.2d 128 (2d Cir. 1984).
\7\ FTC v. Motion Picture Advert. Serv. Co., 344 U.S. 392
(1953); Standard Oil Co. of Cal. v. United States, 337 U.S. 293, 309
(1949).
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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. 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.
Dissenting Statement of Commissioner Christine S. Wilson
Today, the Commission announced that it has accepted, subject to
final approval, consent agreements with two companies in the glass
container industry. The consents resolve allegations that the use of
non-compete agreements in employee contracts constitutes an unfair
method of competition that violates section 5 of the FTC Act. These
cases, which allege stand-alone violations of section 5, are among the
first to employ the approach that the recently issued Section 5 Policy
Statement \1\ describes. For the reasons explained below, I dissent.
---------------------------------------------------------------------------
\1\ Fed. Trade Comm'n, Policy Statement Regarding the Scope of
Unfair Methods of Competition Under Section 5 of the Federal Trade
Commission Act (Nov. 10, 2022), <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/p221202sec5enforcementpolicystatement_002.pdf">https://www.ftc.gov/system/files/ftc_gov/pdf/p221202sec5enforcementpolicystatement_002.pdf</a>.
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Context is important. Under current leadership, the Commission has
demanded significant volumes of information from parties under
investigation, but not all requested information is related to
traditional competition analysis.\2\ In addition, this Commission has
declared its willingness to take losing cases to court.\3\ When faced
with the expense of complying with expansive demands for documents and
other material, and the possibility of an enforcement action regardless
of the merits, parties under investigation rationally may express a
willingness to settle. Under these circumstances, staff's investigation
typically is quite limited.
---------------------------------------------------------------------------
\2\ See Christine S. Wilson, Comm'r, Fed. Trade Comm'n, There's
Nothing New Under the Sun: Reviewing Our History to Foresee the
Future, Keynote Address at GCR Live Merger Control 8-9, Virtually
and Brussels, Belgium (October 7, 2021), <a href="https://www.ftc.gov/system/files/documents/public_statements/1597798/gcr_merger_control_keynote_final.pdf">https://www.ftc.gov/system/files/documents/public_statements/1597798/gcr_merger_control_keynote_final.pdf</a>.
\3\ See Lina M. Khan, Chair, Fed. Trade Comm'n, How FTC Chair
Lina Khan wants to modernize the watchdog agency, Marketplace
interview with Kimberly Adams, <a href="https://www.marketplace.org/shows/marketplace-tech/how-ftc-chair-lina-khan-wants-to-modernize-the-watchdog-agency/">https://www.marketplace.org/shows/marketplace-tech/how-ftc-chair-lina-khan-wants-to-modernize-the-watchdog-agency/</a>, (June 17, 2022) (``We always want to win the cases
that we're bringing. That said, it's no secret that in certain
areas, you know, there's still work to be done to fully explain to
courts how our existing laws and existing authorities, which go back
over 100 years, apply in new context. . . . And I think there can be
a serious cost of inaction. So we really have a bias in favor of
action.''); David McCabe, Why Losing to Meta in Court May Still Be a
Win for Regulators, New York Times, <a href="https://www.nytimes.com/2022/12/07/technology/meta-vr-antitrust-ftc.html">https://www.nytimes.com/2022/12/07/technology/meta-vr-antitrust-ftc.html</a> (Dec. 7, 2022) (``In April,
Ms. Khan said at a conference that if `there's a law violation'' and
agencies ``think that current law might make it difficult to reach,
there's huge benefit to still trying.' She added that any courtroom
losses would signal to Congress that lawmakers needed to update
antitrust laws to better suit the modern economy. `I'm certainly not
somebody who thinks that success is marked by a 100 percent court
record,' she said.'').
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Noteworthy Aspects of the Complaints
There are several noteworthy aspects of the Complaints issued
against O-I Glass and Ardagh. The first is the brevity of these
documents; each Complaint runs three pages, with a large percentage of
the text devoted to boilerplate language. Given how brief they are, it
is not surprising that the complaints are woefully devoid of details
that would support the Commission's allegations. In short, I have seen
no evidence of anticompetitive effects that would give me reason to
believe that respondents have violated section 5 of the FTC Act.
The second noteworthy aspect of these complaints is their omission
of any allegations that the non-compete provisions at issue are
unreasonable, a significant departure from hundreds of years of legal
precedent. The first complaint alleges that O-I Glass entered into non-
compete agreements with employees that prohibited them from working for
competitors of O-I in the United States for one year following the
conclusion of their employment with O-I.\4\ And the second complaint
alleges that Ardagh's contracts typically prohibited employees from
performing the same or substantially similar services to those the
employee performed for Ardagh for any glass container competitor of
Ardagh in the United States, Canada, or Mexico for two years following
the conclusion of their employment with Ardagh.\5\
---------------------------------------------------------------------------
\4\ O-I Glass, Inc. Complaint ] 7.
\5\ Ardagh Group S.A. Complaint ] 7.
---------------------------------------------------------------------------
Courts have long analyzed the temporal length, subject matter, and
geographic scope of non-compete agreements to determine whether those
agreements are unreasonable; when non-compete agreements are not found
to be unreasonable, courts repeatedly have held that they do not
violate the antitrust laws.\6\ In the cases before us, the Commission
makes no reasonableness assessment regarding the duration or scope of
the non-compete clauses. Instead, it seems to treat the non-compete
clauses as per se unlawful under Section 5 of the FTC Act. But the
Seventh Circuit held that under Section 5, ``[r]estrictive [non-
compete] clauses . . . are legal unless they are unreasonable as to
time or geographic scope[.]'' \7\ Notably, the Seventh Circuit further
found that ``even if [the non-compete] restriction is unreasonable as
to geographic scope,'' it was ``not prepared to say that it is a per se
violation of the antitrust laws.'' \8\
---------------------------------------------------------------------------
\6\ See United States v. Empire Gas Corp., 537 F.2d 296, 307-08
(8th Cir. 1976); Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 267
(7th Cir. 1981); Newburger, Loeb & Co., Inc. v. Gross, 563 F.2d
1057, 1081-83 (2d Cir. 1977); Bradford v. New York Times Co., 501
F.2d 51, 57-59 (2d Cir. 1974).
\7\ Snap-On Tools Corp. v. Fed. Trade Comm'n, 321 F.2d 825, 837
(7th Cir. 1963).
\8\ Id.
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A third noteworthy aspect of the complaints concerns the absence of
allegations that the non-compete clauses in the O-I Glass and Ardagh
contracts were enforced.\9\ Absent efforts to enforce a non-compete
provision, courts have been unwilling to find a violation of the
antitrust laws.\10\
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\9\ Compare O-I Glass, Inc. Complaint and Ardagh Group S.A.
Complaint with Prudential Security, Inc. Complaint ]] 18-21.
\10\ O-Regan v. Arbitration Forums, Inc., 121 F.3d 1060, 1065-66
(7th Cir. 1997) (``to apply antitrust laws to restrictive employment
covenants, there must be some attempted enforcement of an arguably
overbroad portion of the covenant in order for there to be a federal
antitrust violation.''); Lektro-Vend Corp. v. Vendo Co., 660 F.2d at
267.
---------------------------------------------------------------------------
Fourth, the complaints assert that the non-compete clauses impede
entry or expansion of rivals in the glass container industry, based on
a claim that barriers to entry in the glass container industry include
``the ability to identify and employ personnel with skills and
experience in glass container manufacturing.'' \11\ But the Commission
makes no factual allegations regarding the inability of any rival to
enter or expand. Moreover, this asserted barrier to entry and expansion
in the industry
[[Page 2624]]
is newly alleged by the Commission; in 2013, the Commission challenged
the proposed merger of Ardagh Group S.A. and Saint-Gobain Containers,
Inc. following a lengthy and thorough investigation. The complaint
described in detail the barriers to entry in the glass container
industry but did not reference the difficulty of obtaining experienced
employees.\12\
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\11\ O-I Glass, Inc. Complaint ] 6; Ardagh Group S.A. Complaint
] 6.
\12\ The complaint in that merger challenge alleged that:
``Effective entry or expansion into the relevant markets would
neither be timely, likely, or sufficient to counteract the
Acquisition's likely anticompetitive effects. The barriers facing
potential entrants include the large capital investment necessary to
build a glass plant, the need to obtain environmental permits, the
high fixed costs of operating a glass plant, existing long-term
contracts that foreclose much of the market, the need for specific
manufacturing knowledge that is not easily transferred from other
industries, and the molding technologies and extensive mold
libraries already in place at existing manufacturers.'' In the
Matter of Ardagh Group S.A. and Saint-Gobain Containers, Inc., File
No. 131-0087, <a href="https://www.ftc.gov/sites/default/files/documents/cases/2013/07/130701ardaghcmpt.pdf">https://www.ftc.gov/sites/default/files/documents/cases/2013/07/130701ardaghcmpt.pdf</a> (2013) Complaint ] 42.
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Continuing in this vein, the complaints here also assert that the
non-compete provisions reduce employee mobility and ``caus[e] lower
wages and salaries, reduced benefits, less favorable working
conditions, and personal hardships to employees.'' \13\ But the
complaints do not identify a relevant market for skilled labor as an
input to glass container manufacturing, and fail to allege a market
effect on wages or other terms of employment. Even the Analysis to Aid
Public Comment relies only on academic literature that discusses the
effects of non-competes, albeit not in the glass container industry.
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\13\ O-I Glass, Inc. Complaint ] 8; Ardagh Group S.A. Complaint
] 8.
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Similarly, the complaints allege that more than 1,000 employees at
O-I and more than 700 employees at Ardagh were subject to non-compete
agreements when the Commission opened the investigation, and that some
of those employees were essential to a rival's entry or expansion.\14\
The allegations imply that, conversely, many employees that were
subject to non-compete agreements did not have industry-specific
skills.\15\ Consider, for example, employees in the glass container
industry who worked in the fields of human resources or accounting,
with skills sets that are easily transferable across industries. If
they were subject to non-competes following their departure from O-I or
Ardagh, these employees easily could seek employment in other
industries, including retailing and the services sector. It is
implausible that precluding employees with easily transferable skill
sets from working for rivals in glass container manufacturing would
have an impact on competition in any appropriately defined relevant
market.
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\14\ O-I Glass, Inc. Complaint ] 7; Ardagh Group S.A. Complaint
] 7.
\15\ See also O-I Glass, Inc. Decision and Order Appendix A and
Ardagh Group S.A. Decision and Order Appendix A (listing positions
for which the use of non-compete agreements is prohibited, which
includes positions that have general skills).
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Absent any evidence, the Commission adopts the approach of the
Section 5 Policy Statement and baldly alleges that the use of non-
compete agreements ``has a tendency or likely effect of harming
competition, consumers, and workers,'' offering only a hypothesized
outcome.
Business Justifications
The complaints improperly discount business justifications for the
non-compete provisions. First, they allege in conclusory fashion that
``[a]ny legitimate objectives . . . could have been achieved through
significantly less restrictive means, including . . . confidentiality
agreements that prohibit employees and former employees from disclosing
company trade secrets and other confidential information.'' \16\ This
assertion is unsubstantiated.
---------------------------------------------------------------------------
\16\ O-I Glass, Inc. Complaint ] 9; Ardagh Group S.A. Complaint
] 9.
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Second, the complaints do not address the business justification
and procompetitive benefit of employer-provided training. The
complaints allege that identifying and employing personnel with skills
and experience in glass container manufacturing is a barrier to entry,
which implies that employee training and experience is essential and
that the desired training is not available from sources other than
industry incumbents. Firm-provided training is an accepted and
documented business justification for non-compete clauses; firms are
less willing to invest in employee training if employees leave the firm
after receiving training.\17\ The complaints do not allege that there
is a less restrictive alternative for non-compete provisions regarding
firm-provided training. Moreover, it is ironic that the orders issued
in these matters may lead to reduced firm-sponsored training, which may
(1) reduce the available trained labor that would allow entry or
expansion of competing firms and (2) harm the same employees at O-I
Glass and Ardagh that the cases claim to help.
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\17\ See Evan Starr, Consider This: Training, Wages, and the
Enforceability of Non-Compete Clauses, 72 I.L.R, Rev 783, 796-97
(2019); Matthew S. Johnson & Michael Lipsitz, Why Are Low-Wage
Workers Signing Noncompete Agreements?, 57 J. Hum. Res. 689, 711
(2022).
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Although the complaints are dismissive of business justifications,
the relief obtained implicitly acknowledges the existence of legitimate
business justifications for non-compete clauses. Specifically, the
Agreements Containing Consent Orders prohibit the use of non-compete
clauses for covered employees, which are described by a list of
positions in Appendix A. Careful review of those lists reveals that
senior executives and employees involved in research and development
are not included. Although not acknowledged in the Analysis to Aid
Public Comment, the Commission here implicitly has credited at least
some business justifications for non-compete clauses.
Concerns for Due Process
I am concerned whether the respondents had notice that their
conduct would be viewed as unlawful. As noted above, the allegations
here depart from a centuries-long line of precedent regarding the
appropriate analysis of the legality of non-compete provisions, and
conflict with a Seventh Circuit holding specific to section 5 of the
FTC Act. The allegations are premised on the Section 5 Policy Statement
issued in November 2022, which also represents a radical departure from
precedent. But the complaints in these matters challenge conduct of O-I
Glass and Ardagh that predates the November 2022 Section 5 Policy
Statement. The Second Circuit explained in Ethyl that ``the Commission
owes a duty to define the conditions under which conduct . . . would be
unfair so that businesses will have an inkling as to what they can
lawfully do rather than be left in a state of complete
unpredictability.'' \18\ Given the state of the law for hundreds of
years prior to this enforcement challenge, I believe notice was
lacking.
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\18\ E.I. du Pont de Nemours & Co. v. F.T.C., 729 F.2d 128, 139
(2d Cir. 1984). See also id. at 136 (``Review by the courts was
essential to assure that the Commission would not act arbitrarily or
without explication but according to definable standards that would
be properly applied.'').
[FR Doc. 2023-00695 Filed 1-13-23; 8:45 am]
BILLING CODE 6750-01-P
</pre></body>
</html>Indexed from Federal Register on January 17, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.