Hunton Employment & Labor Perspectives

The Federal Trade Commission (FTC) voted on April 23 to approve a final rule banning most non-compete agreements between employers and their workers (Final Rule). The Final Rule is scheduled to go into effect 120 days after it is published in the Federal Register, which will likely occur in the next few weeks, though legal challenges may delay the Final Rule’s effective date and FTC enforcement actions.

On January 5, 2023, the Federal Trade Commission (“FTC”) issued a notice of proposed rulemaking (“NPRM”) that would “provide that it is an unfair method of competition – and therefore a violation of Section 5 [of the FTC Act] – for an employer to enter into or attempt to enter into a non-compete clause with a worker; [or to] maintain with a worker a non-compete clause . . .”  If this rule becomes final, it would effectively prohibit employers from entering into non-compete agreements—as broadly defined by the proposed rule—with their workers. 

On September 10, 2020, the United States District Court for the District of Massachusetts issued a Memorandum and Order granting summary judgment in favor of a franchisor in response to claims by a purported class of franchisees that they were not truly independent contractors, but employees of the franchisor.

The main issue addressed in the case was whether specific federal legal requirements that are imposed upon franchisors trump the general Massachusetts independent contractor classification statute. The federal court reasoned that applying the Massachusetts independent contractor classification statute to the franchise business model would render franchisors regulated by the Federal Trade Commission (“FTC”) criminally liable under state law for employee misclassification simply by virtue of their compliance with the FTC’s requirements.

The Department of Justice’s top antitrust official announced that criminal charges against companies who agreed not to hire one another’s employees will be forthcoming, with announcements to be made in the coming months.

This past week the FTC and DOJ issued an 11-page guidance document aimed at protecting employees against anticompetitive conduct with respect to naked wage-fixing and agreements, in which companies agree on salary or other terms of compensation, and anti-poaching agreements. The guidance to human resource (“HR”) professionals and hiring managers relates to both hiring and compensation decisions.

The government’s guidance makes clear that naked wage-fixing agreements and anti-poaching agreements, in which companies agree not to recruit each other’s employees, are illegal under U.S. antitrust laws and, moving forward, DOJ will criminally investigate both individuals and companies suspected of their violation.  There is a carve-out for legitimate collaboration between employers.  The most common form of relevant, legitimate collaboration would be a joint venture between two companies, as these are not considered per se illegal under the antitrust laws.

On March 10, 2014, the Federal Trade Commission (“FTC”) and the Equal Employment Opportunity Commission (“EEOC”) issued joint guidance regarding the use of background checks.  The FTC, which enforces the Fair Credit Reporting Act, monitors compliance with how background checks are conducted.  The EEOC, which enforces federal laws against discrimination, seeks to ensure that the use of background checks does not disparately impact protected groups.