Company threatened to fine low-wage workers $100,000 if they left for a competitor, feds say
Federal regulators are taking aim at companies that make workers promise not to take jobs elsewhere as a condition of employment.
The Federal Trade Commission on Wednesday announced settlements with three companies that made workers sign noncompete agreements, in which they promised not to work for competitors for a period of time after leaving their jobs. It is the first time that the FTC has taken legal action on noncompetes — restrictions that have grown increasingly popular with employers in recent years and that tend to lower workers' wages by reducing their options.
The FTC on Thursday proposed a wholesale ban on noncompete agreements between businesses and workers.
Michigan-based Prudential Security and Prudential Command allegedly required more than a thousand minimum-wage security guards to sign noncompetes, going so far as to sue former employees who left for better jobs, the FTC said in a complaint. Prudential's agreements threatened workers with a $100,000 penalty if they took jobs with a competitor within a 100-mile radius within two years of leaving, the complaint stated.
In 2019, a Michigan court found that the noncompetes were "unreasonable and unenforceable under state law," but the company continued to impose these agreements on their workers, according to the FTC.
Last August, Prudential sold the bulk of its business to Titan Security Group, which dropped the requirement that new employees sign noncompetes. But that still left about 1,500 former employees thinking they were bound by the agreement, the FTC said.
"These cases highlight how noncompetes can block workers from securing higher wages and prevent businesses from being able to compete," FTC Chair Lina Khan said in a statement.
Under the FTC settlement, Prudential and its former owners, Greg Wier and Matthew Keywell, must notify workers that they are no longer bound by noncompetes. They also agree not to use noncompetes in any future businesses.
Reached for comment, a Titan spokesperson praised the FTC's actions.
"Titan does not and has never imposed noncompete restrictions on its security officers. We applaud the FTC's efforts to halt unlawful noncompete restrictions and to protect workers," the spokesperson said in a statement.
Salaried workers "locked up"
The FTC also reached settlements with two glass container companies, Ohio-based O-I Glass and Ardagh Group, a Luxembourg-based company with a location in Indianapolis. Together, the companies subjected about 1,700 salaried employees to noncompete agreements which "locked up highly specialized workers" and prevented others from starting competing businesses in the highly concentrated glass industry, Khan said in a statement.
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Under the FTC settlement, Ardagh and O-I Glass are required to notify workers they are no longer bound by noncompetes and inform any new employees they are free to work for rival businesses after they leave.
O-I Glass declined to comment on the settlement. Ardagh did not respond to a request for comment.
Antimonopoly groups praised the FTC's move.
"Noncompetes aren't just bad for workers, they make it harder for other businesses to start and grow. Sand in the gears of a dynamic, competitive, opportunity-rich economy," Kenan Fikri, research director at the Economic Innovation Group, said on Twitter.
Noncompetes have become increasingly common, with one study finding that one-third of businesses require their workers to sign away future economic rights in some way. The Biden administration has made restoring competition a major plank of its economic policy, issuing an executive order in 2021 to limit monopolistic behavior.
The FTC estimates that banning noncompetes nationwide would raise workers' wages by $250 to $300 billion a year.