Think the FTC is done taking on restrictive covenants? Think again!

Yesterday, the Federal Trade Commission announced that it had ordered a building services contractor to stop enforcing a no-hire agreement. The agreement purportedly prohibited building owners and managers from hiring the contractor’s employees.

Some of you are probably thinking that you read somewhere—possibly here—that a federal court enjoined the FTC’s sweeping non-compete ban. This is true. The injunction remains in effect. However, the FTC remains committed to preventing unfair competition, and these no-hire agreements placed this particular employer directly in the federal agency’s crosshairs.

In its complaint against the company, the FTC alleged that the employer included no-hire agreements in its customer service agreements with residential building owners. The FTC further alleged that these agreements prohibited building owners and competing building service contractors from hiring the building service contractors’ employees, including personnel, custodians, and maintenance technicians, either during or after the termination of a building contract with the company. The FTC also claims that the no-hire agreement could force employee to leave their jobs if the building they work at changed management.

After it filed the complaint, the FTC entered into a proposed consent order with the company under which it must cease and desist from, directly or indirectly, enforcing a no-hire agreement or communicating to any prospective or current customer that they are subject to a no-hire agreement.

The press release notes that, under the proposed consent order, the company must also:

• Provide notice to customers and its employees with a copy of the FTC’s order that shows that the no-hire agreement is no longer in effect.
• Post clear and conspicuous notice to each new employee upon hire and in any shared employee space, such as a breakroom, stating that their employment will not be subject to a no-hire agreement.
• Take all steps necessary to void and nullify all existing no-hire agreements and notify FTC staff in writing that all existing no-hire agreements are voided and nullified.
• Not require any person who is party to an existing no-hire agreement to pay any fees or penalties relating to a no-hire agreement.

The FTC’s decision to issue the complaint and accept the proposed consent agreement for public comment was not unanimous. Indeed, the two republican commissioners dissented. One noted that the majority acted here on “a theory about hypothetical effects” without supporting evidence.

With the FTC’s makeup sure to change under a new presidential administration, don’t bank on this case being the start of an FTC crusade against all no-hire agreements. However, even the dissenters acknowledged that some no-hire agreements may be unlawful. Also, state laws can run the gamut. So, consult an employment lawyer before using them for your business.