For many months now, the FTC’s noncompete ban has been an important focus of BFV blogs. In the most recent development, Judge Brown issued a final ruling in Texas that the ban is invalid and must be set aside. As the effective date of the rule was fast approaching, this decision resolved the looming uncertainty for employers.
However, while the FTC tried to ban most noncompetes, it has also been pursuing enforcement actions against companies whom it contends are abusing noncompetes that constitute unfair methods of competition. After Judge Brown ruled against the FTC, the FTC noted that her order does not prevent it “from addressing noncompetes through case-by-case enforcement actions.”
Enforcement Actions by State Attorneys General
The FTC is not the only body bringing enforcement actions to address abusive noncompetes.
A very recent case involved Attorneys General from six states: Minnesota, Colorado, Illinois, Maryland, Massachusetts, and New York. This group formed a coalition to investigate Valvoline. The automotive services company was requiring its hourly employees to sign one-year noncompetes which restrict them from working for an oil change business within 100 miles of their location. Valvoline also required employees to sign employee and customer nonsolicitation covenants.
One has to wonder how a company could think that a 100-mile radius for an hourly worker at an oil change business is reasonable. For example, there are about six oil change service shops within earshot of the major intersection in the Atlanta suburb where I live.
Not surprisingly, these agreements, particularly the noncompete, were viewed as abusive and unreasonable. Following an investigation, Minnesota’s Attorney General announced that the coalition reached a settlement with Valvoline. In the settlement, Valvoline agreed to stop requiring employees to sign these agreements. It also agreed to notify current and former employees that their covenants are no longer in effect. Notably, Minnesota, whose Attorney General appears to have led the investigation, recently instituted a California-style ban on most new noncompetes.
Abuse of Noncompetes
Valvoline’s use of a 100-mile noncompete with hourly workers at oil change service stores seems exceptionally egregious (akin to Jimmy John’s using noncompetes with sandwich makers). It is a good reminder that abuse of noncompetes with low-wage and/or blue-collar workers is a serious matter, one which many states are attempting to address. Given how overreaching Valvoline’s agreements are, it is not surprising that they caught the attention and ire of several Attorneys General.
This case is also a good reminder that even though the FTC’s noncompete ban was found invalid, many State Attorneys General were already proactively cracking down on what they perceive to be noncompete abuse. This is particularly so in states where noncompetes are disfavored and legislatures have already sought to curb noncompete abuse. In these states, the Attorneys General are likely to pursue remedies against companies, like Valvoline, that use noncompetes unreasonably.
A crackdown on abusive noncompetes will likely continue, even if the FTC appeals Judge Brown’s ruling and the Fifth Circuit and/or the Supreme Court agrees that the FTC does not have the authority to regulate noncompetes. Companies should thus continue to be mindful to use reasonably tailored restrictive covenant agreements.
If you or your business has questions regarding your or your organization’s restrictive covenants, please feel free to reach out to me.
Neal Weinrich knows noncompetes and trade secrets inside and out. A shareholder at Berman Fink Van Horn, Neal counsels clients in all industries on matters involving restrictive covenants, trade secrets and other competition-related issues.
