Glass Container Non-Compete Restrictions; Analysis of Agreements Containing Consent Orders To Aid Public Comment, 2618-2624 [2023-00695]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 88, Number 10 (Tuesday, January 17, 2023)]
[Notices]
[Pages 2618-2624]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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 https://www.regulations.gov 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: 
https://www.ftc.gov/news-events/commission-actions.
    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 https://www.regulations.gov 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 https://www.regulations.gov 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 https://www.regulations.gov, 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 https://www.regulations.gov--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 https://www.ftc.gov 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 https://www.ftc.gov/site-information/privacy-policy.

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, https://home.treasury.gov/system/files/226/Non_Compete_Contracts_Econimic_Effects_and_Policy_Implications_MAR2016.pdf (``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), https://equitablegrowth.org/working-papers/labor-non-compete-agreements-tool-for-economic-efficiency-or-means-to-extract-value-from-workers/ (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, https://home.treasury.gov/system/files/136/State-of-Labor-Market-Competition-2022.pdf; 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), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3455381; 
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), https://ssrn.com/abstract=3040393.
    \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).
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    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''], https://www.ftc.gov/system/files/ftc_gov/pdf/P221202Section5PolicyStatement.pdf.
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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), https://www.ftc.gov/system/files/ftc_gov/pdf/Section5PolicyStmtKhanSlaughterBedoyaStmt.pdf; Remarks of Chair Lina 
M. Khan As Prepared for Delivery at Fordham Annual Conference on 
International Antitrust Law & Policy (Sept. 16, 2022), https://www.ftc.gov/system/files/ftc_gov/pdf/KhanRemarksFordhamAntitrust20220916.pdf.
    \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.
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    \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), https://www.ftc.gov/system/files/ftc_gov/pdf/p221202sec5enforcementpolicystatement_002.pdf.
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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.
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    \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), https://www.ftc.gov/system/files/documents/public_statements/1597798/gcr_merger_control_keynote_final.pdf.
    \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, https://www.marketplace.org/shows/marketplace-tech/how-ftc-chair-lina-khan-wants-to-modernize-the-watchdog-agency/, (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, https://www.nytimes.com/2022/12/07/technology/meta-vr-antitrust-ftc.html (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\
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    \4\ O-I Glass, Inc. Complaint ] 7.
    \5\ Ardagh Group S.A. Complaint ] 7.
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    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\
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    \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.
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    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, https://www.ftc.gov/sites/default/files/documents/cases/2013/07/130701ardaghcmpt.pdf (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.
---------------------------------------------------------------------------

    \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.
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    \16\ O-I Glass, Inc. Complaint ] 9; Ardagh Group S.A. Complaint 
] 9.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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