Understanding the FTC’s Landmark Ban on Noncompetes

Episode Summary

In this episode of the "Fierce Competition" podcast, Skadden attorneys Tara Reinhart (partner, Washington, D.C.), Annie Villanueva Jeffers (partner, New York and Palo Alto) and Justine Haimi (counsel, New York) explore the Federal Trade Commission's (FTC’s) landmark ban on noncompete agreements. They discuss the FTC's rationale for the rule, as well as potential implications of the ban for businesses and enforcement challenges it may face. Tara, Annie and Justine point out the likelihood of a preliminary injunction against the rule due to ongoing litigation, and they highlight strategies for employers to navigate this new landscape. The episode emphasizes the FTC's increased focus on labor and worker protection, underscoring the need for companies to monitor the situation given its potential widespread impact on antitrust enforcement and employment practices.

Key Points

• FTC's Broad Ban on Noncompetes: Intending to address concerns such as wage suppression, worker exploitation and hindered innovation, the Federal Trade Commission (FTC) has introduced a controversial rule banning noncompete agreements. Exceptions to this rule include situations involving the sale of a business and existing agreements with senior executives.
• Anticipated Challenges to the Rule: In addition to potential enforcement issues, other challenges may stem from the states' traditional role in regulating noncompetes and implications for businesses protecting their interests. Ongoing litigation from the U.S. Chamber of Commerce, among other entities, could lead to a preliminary injunction against this rule.
• Navigating the New Landscape for Employers: Employers may want to consider alternative strategies to protect their interests in this new paradigm, including the use of non-solicitation agreements, garden leave arrangements and agreements to protect trade secrets and other confidential information. Regular monitoring of the situation is suggested due to the rule’s far-reaching effects on antitrust enforcement and employment practices.

Voiceover (00:00):
Welcome to Fierce Competition, a podcast from Skadden's Global Antitrust and Competition group that explores antitrust policy and enforcement around the world. Join our colleagues from across the continent as we discuss the latest developments and what they mean to you in an increasingly complex legal and regulatory landscape.

Tara Reinhart (00:21):
Hi, everyone, and welcome to the newest episode of Fierce Competition. I am Tara Reinhart. I'm a partner in Skadden's Washington D.C. office in the antitrust practice, and I am thrilled to be joined today by Annie Villanueva Jeffers, who is a partner in the New York office in the Labor and Employment Group, and by Justine Haimi, one of my fellow antitrusters, a council in the New York office. We are here today to talk about a bomb that was dropped just two days ago by the FTC, their final rule banning non-competes. Now we're recording this on April 25th, as I said, two days after the final rule was made and already a bunch of stuff has happened. So don't be surprised if you see Episode 2, this being Episode 1 of 2, and we'll have another session in a couple of weeks after more developments occur, but first of all, let me just barely quickly tell you what happened two days ago. The FTC ruled that henceforth, no non-competes are going to be lawful.

(01:27):
Now, there's an exception to that if you are a person selling a business. There's also an exception right now for existing agreements that companies have with so-called senior executives. But those agreements are only valid as long as they are currently in effect. Once they terminate, according to the FTC, companies can no longer enter into non-competes even with senior executives. So if this rule goes forward, then companies will be required to notify their employees that the non-compete clauses in their employment agreements are no longer valid, and they won't be able to use them again. Now, in the two days since the rule dropped, the Chamber of Commerce sued, another business sued. There may be even more suits by the time this airs, and the Chamber of Commerce has sought a temporary restraining order or the ability to temporarily block the deal while its lawsuit is unfolding. So what we got in addition to the final rule is 550 pages of context that supports the rationale for the FTC's rule and provides, according to the FTC, both legal and economic support.

(02:46):
But what we also see is that by issuing this rule, the FTC unilaterally has voided millions of agreements that exist between employers and employees. They've done that without Congress acting to legislate. They've also basically set aside the 46 state statutory schemes that for a long time for most of them have regulated non-compete agreements. So we're mindful that a lot of the comments that the FTC received are from individuals who told their stories of how their employers have abused non-compete clauses and really negatively affected their lives. But when we look at this issue through the eyes of business clients, there are some pretty serious concerns. They're practical concerns and legal concerns, and the FTC might find that it is not upheld by a court, the first court to decide whether this is valid or not, which likely will be in the U.S. Chamber of Commerce lawsuit. So let's talk through all of it, and I want to start with Justine. How did we get here?

Justine M. Haimi (04:10):
How did we get here? That's a great question, Tara. As you said, this rule is really a bombshell, but in retrospect, it was years in the making. In July 2021, President Biden released an executive order calling for a Whole-of-Government approach to regulatory actions by administrative agencies. Part of that executive order included a call to either ban or limit non-compete agreements. In January 2023, so last year, the FTC released a Notice of Proposed Rulemaking outlining what ultimately became much of the final rule with a few changes, which we'll discuss shortly. The FTC released this proposed rulemaking under its Section 6(g) of the FTC Act, rulemaking powers. It's a very rarely used section of the FTC Act that we'll talk about a bit later, a little controversial that the FTC is promulgating this rulemaking under that specific section. This rule is also part and parcel of the FTC's broad approach to Section 5 of the FTC Act, which prohibits unfair or deceptive act or practices in/or affecting commerce. We'll put all of our statutory interpretation hats on a little bit later in the podcast.

(05:27):
So after the notice was issued, the FTC received over 26,000 comments from workers across the earnings spectrum. The FTC said that about 25,000 of those comments, or over 25,000 of those comments criticized non-competes and called for a ban to some degree. There were a lot of anecdotes provided about workers, as you mentioned, Tara, facing limited mobility, limited wages and inability to start new businesses that we'll also discuss a little bit later when we talk about some of the concerns FTC has outlined as relates to non-compete agreements. Ultimately, it's a question whether many of those comments made it into the final rule. One set of comments related to credible concerns about existing non-competes for senior executives and actually did make it into the final rule as an exception. With all of that said, I think for most of our listeners, the practical question is, what should clients do and what does this mean now that the non-compete rule is finalized. Annie, is that something that maybe you can touch base on?

Annie Villanueva Jeffers (06:30):
Yeah. Yeah, thanks, Justine. I'm happy to jump in on that. So I think as a preliminary matter, it seems likely that this rule will be enjoined by the courts. I don't have a crystal ball, but that seems likely, in my opinion. We already saw the Chamber of Commerce already sued to block the rule on various grounds. So more to come on that in our discussion. But in the event that the rule isn't enjoined in the courts, companies have 120 days from the date that the final rule is published in the register to comply with this rule. So what does it require? So it says you have to prepare these individualized notices. They could be paper or digital for employees who are not, quote, "senior executives," and they have to be delivered before that 120-day mark. They should signal to workers that the employer no longer plans to enforce their non-compete against the worker in the future.

(07:33):
The FTC in its final rule does indeed provide some model language for employers to use as notice to say that, "Hey, your non-compete is no longer enforceable, and that model language does, in fact, fulfill your notice obligation under the rule." Obviously, this is challenging for many companies. It could be very administratively burdensome, so companies should be considering whether they're going to prepare those individualized communications in advance of that 120-day mark. I mentioned earlier, you don't have to give those notices to senior executives, and that's because existing agreements up until that 120-day mark with senior executives aren't subject to the non-compete ban. So who is a senior executive? Just again, as an initial matter, that's not clear. It leaves significant room for dispute in terms of who falls within its definition.

(08:38):
So it's defined as workers earning more than $151,164 within the preceding year, that's clear, but who are in a, quote, "policymaking position." The final rules do define what a policymaking position is, but still that leaves some room for interpretation, which is challenging. So a policymaking position is a business entity's president, A CEO or the equivalent or another officer of a business entity who has policymaking authority. It defines policymaking authority as final authority to make policy decisions that control significant aspects of a business entity or a common enterprise. So again, that when you think about your vice presidents, your presidents, it can be very confusing as to who actually has that policymaking authority, so that leaves room for interpretation. But one other thing employers and companies can consider is one exception to this non-compete ban is a sale of business. So what exactly constitutes a sale of business here?

(09:53):
So the initial proposed rule that Justine mentioned included a even narrower exception involving sale of business with a seller or worker who owns at least 25% of a business entity. Now here, the final rule adopts a broader exception for non-compete clauses that are entered into pursuant to a bonafide sale of business entity or of a person's ownership interest in a business entity or of all or substantially all of the business entity's operating assets. So it has to be a true sale of business, not a sham sale of business. So yes, while the exception has been broadened here in this final rule, the FTC has made clear that those non-competes will still be subject to state laws as well as federal antitrust laws. So even when you're in that context of the sale of business, you still have to then look at what are the rules in various states that pertain to the sale of business exception.

Tara Reinhart (10:56):
I actually had a question for you, Annie, I wanted to go back to your definition of policymaker. I'm just wondering if as a matter of logic, policymaker could or should be extended to the people who are just below those actual decision-makers with authority because they have all the same information that the actual decision-makers have. They probably do a lot of the forming of the decisions and the strategies themselves for their bosses.

Annie Villanueva Jeffers (11:26):
Right.

Tara Reinhart (11:26):
They're probably in a position where very soon they're going to be decision-makers themselves as they go up the ladder. So it just seems like logically businesses should have the ability to define that term based on the function of the person, not necessarily, are they the decision-maker? Are they the ones with the authority to do X, Y and Z?

Annie Villanueva Jeffers (11:51):
Right, I completely agree and it's so fact specific. So to try to take that definition and apply it to your organization, it just may not fit perfectly, and so I think that's going to definitely be a challenge. From here, I want to turn it over to you, Justine, to tell us why doesn't the FTC really liked non-competes?

Justine M. Haimi (12:13):
Thanks, Annie. So as Tara mentioned, there are about 570 pages of context provided with the final rule, and that context explained why the FTC disfavors non-compete clauses as well as alternative methods that the FTC recommends employers take that may be less restrictive than non-compete clauses. First and foremost, the FTC said that non-competes affect about 30 million American workers. That's one in five workers to the point about senior executives, only about 1% of those workers fall under the senior executive exemption. The FTC outlined a lot of anecdotes and examples of negative effects of non-competes. So for example, the FTC found that non-competes significantly reduce workers' wages, may exploit workers and hinder economic liberty because of the disparity in bargaining power between employers and employees.

(13:05):
In a particularly notable example that Chair Khan highlighted in a webcast announcing the final rule, she described the situation of a bartender who unknown to him or her signed a non-compete upon employment. Their employer ended up being abusive, and when the employee found alternative work at another bar with higher wages and better conditions, they were sued for $300,000 under the terms of the non-compete they didn't even know they had signed. Another key negative effect of non-competes that the FTC talks about a lot in its 570 pages is reduction in innovation and starting of new businesses. They give examples of executives who left an employer to form a startup and were unable to do so because of a non-compete with their former employer. In one example, the former employer ended up rescinding the non-compete due to public pressure and the startup ended up taking off and being quite successful.

(14:08):
The FTC also noted that employers have many other ways to protect their trade secrets, to protect their company concerns and cited to states where non-competes are not allowed. For example, California, where the FTC argues industry has flourished and innovation has flourished and lack of non-competes hasn't had a chilling effect on the ability of new businesses to be formed. Finally, the FTC provided a bunch of quantitative numbers, and the FTC estimates reduced healthcare costs of up to 194 billion on physician services, estimates new business formation of up to 8,500 new businesses each year, a rise in innovation quantified by up to 29,000 more patents each year, and notably higher worker earnings of up to 488 billion over the next decade, which amounts to an extra $524 per year for the average worker.

Tara Reinhart (15:04):
So Annie, let's start talking about enforcement. Again, if there's a preliminary injunction, then we can all put this issue aside for a period of time until the cases are finally resolved. But how will the FTC enforce this rule when the time comes?

Annie Villanueva Jeffers (15:23):
Yeah, thanks, Tara. I think before we even get there, it's important to note that enforcement of non-competes has historically been left to the states. So most states do allow some form of non-competes with just a small number banning them, subject to still some exceptions. We had California, North Dakota, Minnesota, Oklahoma, those are the states that are banning non-competes with exceptions for things like non-competes entered into in connection with a sale of business, for example. Then there's 11 states that prohibit certain non-competes based on an annual compensation threshold, so that could be less than a hundred grand or whatever the case may be in the applicable state. Massachusetts also goes so far as requiring former employees to be paid during any non-compete period among other things.

(16:20):
So overall, while there hasn't been an overhaul of non-competes at the state level, there is a general trend where states, including states like Delaware are demonstrating increased hostility towards and scrutiny of the enforceability of non-competes, particularly in the employment context. However, the FTC noted that the ability of states to regulate non-competes is limited by employees' lack of knowledge about or inability to litigate to enforce their rights, also, employers' use of choice of law provisions, variation in how courts actually apply choice of law provisions in non-compete disputes and interstate nature of work. Then I'll turn it over to Justine, who I think was going to talk about how the FTC challenged a few non-compete provisions, but only in the run-up to their 2023 Notice of Rulemaking.

Justine M. Haimi (17:24):
Thanks, Annie. As you noted, the FTC has challenged very few non-compete clauses and it has only done so in the run-up to the release of the Notice of Proposed Rulemaking in January 2023. The FTC first brought a challenge to a non-compete clause in the context of a merger investigation involving the sale of retail gas outlets. In that investigation, the FTC found that a non-compete placed on the seller of the retail gas outlets that were sold was too broad because it expanded beyond the geographic scope of the assets that were actually part and parcel of the merger. So part of the consent agreement in that merger involved limiting the non-compete as well as the sale of certain assets to address overlaps that the FTC was concerned with. Notably, the day before the Notice of Proposed Rulemaking was released, the FTC announced that it had secured three consent agreements, which resolved allegations that non-compete provisions in labor contracts were an unfair method of competition.

(18:28):
In one complaint, the agency took action against a Michigan-based security guard company, which had a broad non-compete that Michigan had already found unenforceable that it continued to enforce against a broad swath of its security guard workers. In two other complaints, the commission ordered glass container manufacturers to stop imposing non-competes on a broad swath of workers, arguing that those non-competes obstructed competition and impeded new companies from hiring the highly-specialized talent needed to enter the market. So I think an interesting question for all of us to tackle is, how will the FTC actually enforce violations of this new rule, given all that we've heard about the history of state enforcement and the limited enforcement actions FTC has taken on a case-by-case basis?

Annie Villanueva Jeffers (19:15):
Yeah, I think that's a interesting question because if it does end up taking effect after that 120-day mark, the FTC could enforce violations in a couple ways. One could be administrative proceedings under Section 5(b), and second, it could be seeking a district court injunction under Section 13(b). Employees may use the FTC's final rule as a defense if the rule isn't actually enjoined in the courts. But could Justine or Tara, do you guys want to speak to what encompasses the district court injunction under Section 13(b)?

Tara Reinhart (19:56):
Right. So the FTC could bring, as you said, an action within its own internal adjudication process under Section 5 of the FTC Act, and they work their way through their process. The commission gets involved if there's a finding that's appealed, and then if the Defendants lose, they can appeal to a circuit court. So that's one process. The other process, 13(b), is purely for injunctive relief in federal court. If the FTC can show that there's an ongoing violation or an imminent threat of a violation, Supreme Court ruled that you can't get money damages through that process. So that's not an avenue for fines or penalties. The FTC itself and the final rule papers acknowledged that it can't get money for unfair methods of competition violations under Section 5, but they do say that they will seek civil penalties if they issue a cease and desist order and that order is not obeyed. So one context we might see enforcement, Justine, is through the merger investigations, and you are a merger lawyer, so what do you think is going to happen there?

Justine M. Haimi (21:13):
The FTC has taken action, for example, in the retail gas outlet merger I mentioned where they've limited non-compete clauses in the context of getting a merger approved. I actually think of this as similar to Section 8 of the Clayton Act, which is a rule-banning interlocking directorates. It was one that was largely prophylactic. Companies were expected to self-enforce because as here there was no monetary fine for a Section 8 violation. In more recent years, the FTC has investigated potential Section 8 violations in the context of merger agreements and required boards to be un-interlocked in order for mergers to be approved. So an interesting stick could be in the context of a merger looking at a non-compete and saying, "Hey, parties, you need to comply with this final rule, otherwise, you can't close your merger."

Tara Reinhart (22:02):
I would expect that a lot of cases would be brought through a whistleblower process. We see that on the consumer protection side of the FTC all the time where whistleblowers will make a complaint, the FTC will investigate, and then they'll either bring a case or negotiate a settlement or that sort of thing. Here, 25,000 or so individuals already issued comments, although query, how does the FTC handle even a fraction of cases like that, individual cases? It's ironic because as you all already have said, the FTC justified, in part, what it's doing with the rule by saying, "We can't litigate a lot of cases. This is not something that should be done on a case-by-case basis." Yet if you did it on a case-by-case basis, which probably will happen if there is litigation, then courts have the ability to make some rules that would be applied going forward and could be applied to lots of individual situations.

(23:06):
A judge could make some findings around harms based on that category of employer, employee or duration or geography, any number of reasons. Then that decision could then be applied in other cases, and you see the dominoes falling. As for the senior executive types of agreements where there's a lot of negotiation on both sides that ends up in an employment agreement that includes a non-compete, judges absolutely can make decisions about the scope. Is the scope appropriate for the geography, as I said, the category of employee, the duration as well? That's how we've seen these kinds of anti-competitive concerns addressed in other contexts like no-poach cases, for example. So, of course, courts could make broadly applicable rulings that could then be taken out and used to enforce more broadly.

(24:11):
I do wonder if there will be private suits. Under Section 5 of the FTC Act, there is no private right of action. Will there be plaintiff's lawyers who go out and try to come up with, let's say, a Sherman Act Section 1 theory of harm saying that this is an unreasonable restraint of trade, even though that's not the theory under which the FTC instituted the ban? It's a more difficult case to make, but it's possible that Plaintiff's lawyers will look for opportunities to bring class actions. Some folks must have seen Lina Khan on Squawk Box on CNBC yesterday. Lina Khan talked about how senior executives without the yoke of these agreements, we'll be able to just go out and create their own startups now, right? She's insistent that companies will be protected by litigating trade secrets cases or non-disclosure cases. How hard is it to get a win in cases like that?

Annie Villanueva Jeffers (25:21):
I think it's a little challenging for employers when your employees, including senior executives, could go jump ship, go to a competitor. It's hard for you to know are they actually using your competitively-sensitive information and moreover, trying to demonstrate harm and wrongful conduct, that's challenging to prove in those kind of misappropriation cases as well. So it's not just that those prior employers have all of these avenues to really pursue, I think there's some holes there that make it challenging.

Tara Reinhart (25:57):
Yeah, and that's definitely one of the assertions that the U.S. Chamber of Commerce has made in its complaint as to why this as a ban, as a rule makes no sense and it's hugely burdensome on business. They raise a whole bunch of legal challenges though, too, and I do think we want to hit on those briefly because some of them appear to be quite concerning for the FTC's ability to succeed and getting a judge to agree with them that the rulemaking was the right way to go here. Justine, you want to kick us off on that?

Justine M. Haimi (26:32):
Absolutely. I always love putting my statutory interpretation and legislative history hat on. The FTC took action here, relying on Section 6(g) of the FTC Act to support its authority to make the rule. This is a very rarely used section of the FTC Act and authorizes the FTC to make rules and regulations for the purpose of carrying out the FTC Act. Section 6 as a whole largely covers procedural rather than substantive rules. So stuff like the FTC conducting investigations or requiring companies to provide reports and not the kind of substantive rulemaking that you'd expect from a provision that allows for promulgation of broad sweeping rules such as this one. Like with the merger guidelines we saw earlier this year, the FTC relies on a body of case law, or I should say one case that's a couple of decades old. It's from the 1970s, it's called Petroleum Refiners v. FTC. That was a challenge to the last time the FTC tried to promulgate a rule under 6(g). That rule relating to providing octane numbers on motor gasoline.

(27:42):
In the Petroleum Refiners case, the D.C. circuit held that the FTC had authority under 6(g) to promulgate rules interpreting the FTC Act, including Section 5's prohibition on unfair methods of competition. There's been subsequent legislation providing the FTC with rulemaking authority for consumer protection under the FTC Act, but there hasn't been similar legislation saying flat out the FTC has the ability to promulgate rules relating to unfair competition. It's interesting because opponents to the final rule read this to mean, "Well, Congress hasn't said you have this authority so you don't have it." Whereas, the FTC is taking the reading that, "Congress hasn't said, we don't have the authority, so Petroleum Refiners mean that we do." As I mentioned, this rule is the first time the FTC has attempted to utilize 6(g) this broadly, especially, under purported competition, rulemaking authority, and the Chamber of Commerce case and the Ryan, LLC case, which have been filed challenging the rule do raise interesting questions regarding statutory interpretation and constitutional authority, which may be the genesis of additional lawsuits and certainly, a lot of commentary about the rule.

Tara Reinhart (28:55):
Okay, so assuming that the FTC does succeed in convincing a court that 6(g) gives them the rulemaking ability, what they rely on for what I think is a novel theory of liability here is Section 5's prohibition on, quote, "unfair methods of competition." Section 5 of the FTC Act does have that competition aspect, but it also prohibits unfair or deceptive acts or practices affecting commerce, which has a consumer protection side to it. Historically, the FTC has been reluctant to bring cases solely on Section 5 under the competition prong when it comes to cases because they've got the Sherman Act and the Clayton Act out there that already talk about violations of those laws because of likely harm to competition. There's a long, very consistent set of principles and case law that tells us how to look at conduct under both of those statutes, and here under the unfair methods of competition part, not so much.

(30:06):
So in 2015, the Obama Administration put in place a policy statement that gave the administration's view on what to do with unfair methods of competition. Basically, they said the FTC can bring cases that would not satisfy the elements of either the Sherman Act or the Clayton Act, but that conduct should be analyzed under the rule of reason. In other words, weigh the supposed competitive harms against the pro-competitive benefits or the business justifications and then see which one weighs more, and some conduct will be found to be violative of Section 5 and some won't.

(30:48):
Now in November 2022, Lina Khan's FTC withdrew that 2015 policy statement and instead put in place a sweeping replacement that clearly reaches more than the Obama-era policy statement does because they enumerated, for example, that could be extended to conduct that is coercive, exploitative, abusive, overly restrictive, lots of words that we don't commonly hear when we are assessing whether something is harmful to competition. They did that literally two months before they initiated the non-compete rulemaking. So under the November 2022 framework, the rule of reason balancing test doesn't have to be applied according to the FTC. They don't have to define a market. They don't have to show actual effects. So by outright banning non-competes instead of litigating them, they really are seeking to create a new legal standard for certain kinds of conduct. There's so little definition to what conduct could be illegal that if they were to succeed here in defining non-competes as per se illegal.

Annie Villanueva Jeffers (32:10):
As we mentioned, the Chamber of Commerce filed suit to block this rule, and another argument they made is, "Hey, this is impermissibly retroactive." It argued that the FTC, A didn't identify clear congressional authorization to engage in retroactive rulemaking and B, there actually is none. Nonetheless, the rule nullifies non-competes that parties had previously negotiated for. So all of a sudden, the non-compete can't be enforced unless the employee fits the definition of senior executive and it exists up to the date that the rule becomes effective; yet, the employees still gets the benefit of the bargain, which could consist of valuable compensation and other benefits including access to proprietary information and specialized training and the like. So that's another argument that's been made against this kind of overall ban of non-competes. In his comments about his dissent, Commissioner Ferguson said the rule preempts 46 state statutes. So every state addresses them and many states allow them, although, some have come close to banning them like California with now are exceptions for use in corporate transactions, and there are decades of state case law decisions about this.

Tara Reinhart (33:44):
So Annie, how do employers protect themselves in this environment?

Annie Villanueva Jeffers (33:50):
Yeah, first from these allegations of unfair competition, one thing to consider is providing those individualized notices discussed earlier in advance of the deadline set by the final rule and being prepared to comply going forward with the wholesale ban for all workers of post-employment non-competes. But in the event that the final rule is not enjoined, you can consider alternative restrictions that are permitted, according to the FTC, to protect employers interests. So you can require, for example, that employees sign agreements to protect trade secrets and other confidential information with, of course, the necessary carve-outs for any disclosures that employees are permitted to make under applicable state or federal law. However, those cannot be so broad as to effectively act as a non-compete. So that's a bit of a gray area, and it lends itself to a lot of questions as to when do you cross that line?

(34:58):
You could also consider provisions to incentivize workers not to breach those agreements or think about things like retention bonuses that don't contain any kind of post-employment, non-competition restrictions. You can still consider and use non-solicitation agreements. The FTC has said that as well with employees prohibiting them from recruiting or soliciting customers or employees. But again, those can't be so over-broad that they're effectively acting as a non-compete, covering all current and former customers of a business, that could be construed as over-broad and as anti-competitive, so making sure they're narrowly tailored and still subject to state laws as well in this area. The FTC has also said that things like what's called garden leave, arrangements can be permissible because they aren't technically post-employment restrictions on competition.

(36:01):
So more specifically, the FTC said that an agreement whereby a worker is still employed and receiving the same total annual compensation and benefits on a pro rata basis would not be a non-compete clause under the definition because such an arrangement is not a post-employment restriction. Instead, they said the worker continues to be employed even though the worker's job duties or access to colleagues or the workplace may be significantly or entirely curtailed in that instance of what's called garden leave. Then what we've already mentioned before is sale of business, true bonafide sale of business, non-competes do remain permissible subject to, of course, state and antitrust laws as well. So those are avenues to consider for employers going forward, and in negotiating transactions, companies should be mindful of any limitations on non-competes that still apply. I think here we'll just try to wrap it up with our high-level closing thoughts. So maybe, Justine, do you want to jump in on this one?

Justine M. Haimi (37:12):
Yeah, happy to, and great conversation, guys. Glad to have it and can't wait to have more because this rule is part of the agency's increased focus on labor and protecting workers. For example, the to-be-seen HSR form changes as proposed would've included a section to screen for labor issues like those that we saw flagged in the recent Kroger-Albertsons complaint, which defined a relevant market around unionized labor. So I'm interested to see does the FTC, specifically in the context of merger investigations maybe include a question about non-competes in their second requests, or ask companies for information about how they restrict workers' employment post-employment. I think that's an interesting question, more to come on that, but I'm interested to hear both of your parting thoughts and areas of interest going forward.

Tara Reinhart (38:04):
So I guess my parting thought, it's possible that by the time our listeners and viewers are seeing this, there will have been some updates in particular, perhaps a preliminary injunction entered. If not, I would say it's a good bet that a preliminary injunction will be entered before that 100-day period runs that would require compliance. It will be one of the more interesting litigations to watch, and in fact, the outcome could have far-reaching effects on other areas of antitrust and other areas of enforcement that the FTC in particular has been wanting to expand their reach to. So definitely an area of concern for all who are interested in this, for the employers, but also for the employees, the low-level wage earners who really did pour their hearts out in their comments to the FTC about the effects on them, and we do keep those in mind.

Annie Villanueva Jeffers (39:10):
I think for now we're just really in a bit of a wait-and-see mode at this point. So companies should just really try to continue to monitor the status of the rule and the courts otherwise. More updates to come, and we look forward to you guys joining us again for our second part of this in the future. So thanks so much for joining, everyone.

Voiceover (39:33):
Thank you for joining us for today's episode of Fierce Competition. If you like what you're hearing, be sure to subscribe in your favorite podcast app so you don't miss any future conversations. Additional information about Skadden can be found at skadden.com.