[Federal Register Volume 88, Number 13 (Friday, January 20, 2023)]
[Notices]
[Pages 3737-3742]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-01093]
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FEDERAL TRADE COMMISSION
[File No. 221 0026]
Prudential Security, Inc., et al; Analysis of Agreement
Containing Consent Order 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
[[Page 3738]]
Agreement Containing Consent Order to Aid Public Comment describes both
the allegations in the complaint and the terms of the consent order
embodied in the consent agreement that would settle these allegations.
DATES: Comments must be received on or before February 21, 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: ``Prudential
Security, Inc., et al; File No. 221 0026'' 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: Austin Heyroth (202-326-3011), 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 Order 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 21,
2023. Write ``Prudential Security, Inc., et al; File No. 221 0026'' 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 ``In the Matter
of Prudential Security, Inc., et al; File No. 221 0026'' 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 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 21, 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 Agreement Containing Consent Order To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted, subject
to final approval, an Agreement Containing Consent Order (``consent
agreement'') with Prudential Security, Inc. (``Prudential Security'');
Prudential Command Inc. (``Prudential Command''); Greg Wier, the co-
owner, President, and Director of these companies; and Matthew Keywell,
the co-owner, Secretary, and Treasurer of these companies (collectively
``Respondents''). Prudential Security, Inc. and Prudential Command Inc.
(collectively ``Prudential'') are Michigan corporations that provided
security guard services to clients in several states, including
Michigan, Tennessee, Ohio, South Carolina, and Pennsylvania.\1\
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\1\ Respondents sold and transferred the bulk of Prudential's
security guard assets, including security guard employees, to
another company in August 2022. As described below, the transferred
employees are not subject to Non-Compete Restrictions with the
buyer, and the buyer is not charged in the complaint.
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The consent agreement settles charges that Respondents violated
Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, by
imposing post-employment covenants not to compete (``Non-Compete
Restrictions'') on their employees. 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 competing businesses, form a
competing business, or otherwise compete with the employer. As
explained below, the proposed complaint alleges that Respondents'
conduct constitutes an unfair method of competition because it is
restrictive, coercive, and exploitative and negatively affects
competitive conditions. The complaint further alleges that Respondents'
imposition of Non-Compete Restrictions took advantage of the unequal
bargaining
[[Page 3739]]
power between Respondents and their employees, particularly low-wage
security guard employees, and thus reduced workers' job mobility,
limited competition for workers' services, and ultimately deprived
workers of higher wages and more favorable working conditions.
As further described below, the consent agreement contains a
proposed order remedying the Section 5 violation alleged in the
complaint. Under the terms of the proposed order, Respondents--
including any companies that Greg Wier and Matthew Keywell control or
come to control in the future--must cease and desist from entering,
maintaining, enforcing, or attempting to enforce any Non-Compete
Restriction, or communicating to any employee or other employer that
the employee is subject to a Non-Compete Restriction.
The proposed order has been placed on the public record for 30 days
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 agreement and the comments
received and will decide whether it should make the proposed order
final or take other appropriate action.
The purpose of this analysis is to facilitate public comment on the
proposed order. The analysis is not intended to constitute an official
interpretation of the complaint, the consent agreement, or the proposed
order, and the analysis does not modify their terms in any way.
II. The Complaint
The complaint includes the following allegations:
Prior to August 2022, Prudential employed security guards who
worked at facilities in several states. These security guards, who
accounted for the vast majority of Prudential's workforce, typically
earned hourly wages equal to or slightly above the minimum wage.
Prudential imposed Non-Compete Restrictions on each of these security
guard employees as a condition of employment. Among other limitations,
these Non-Compete Restrictions require the following:
For two years after ceasing to work for Prudential, the
employee must not work for any competing business within 100 miles of
the employee's primary jobsite.
The employee also must not join, form, or ``in any manner
whatsoever help'' any competing business for two years within 100 miles
of the employee's primary jobsite.
The employee must pay $100,000 to Prudential as
``liquidated damages'' if the employee violates the terms of the Non-
Compete Restriction.
Respondents' security guard employees were not permitted to
negotiate the terms of the Non-Compete Restrictions and very few, if
any, security guards consulted an attorney before the restrictions were
imposed by Respondents. The security guard employees were not offered
any monetary compensation or job security in exchange for being subject
to the Non-Compete Restrictions.
The complaint alleges that Respondents repeatedly and actively
relied on these Non-Compete Restrictions to discourage, delay, and
prevent current and former security guard employees from seeking or
accepting alternative employment. Respondents threatened individual
employees with enforcement of their Non-Compete Restrictions, including
the liquidated damages provision, to discourage them from accepting
positions with competing employers. Respondents also contacted
competing security guard companies to notify them of the Non-Compete
Restrictions and to threaten lawsuits if the competitor hired
Respondents' former employees. And Respondents ultimately filed
multiple lawsuits seeking to enforce Non-Compete Restrictions against
individual employees and related lawsuits against competing security
guard companies.
For example, in 2018, a competing security guard company extended
job offers to a number of security guards who worked for Prudential
Security, promising significantly higher wages and more favorable
working conditions. The security guards left Prudential Security and
joined the competing company. Upon learning this, Prudential Security
sued several of the security guards to prevent them from continuing
employment with the competitor. After months of litigation, a Michigan
state court dismissed the suit, finding that there was ``nothing in the
employment, training or knowledge of the individual defendants which
would warrant enforcement of a non-compete under the circumstances.''
\2\ The court also concluded that the Non-Compete Restrictions' two-
year duration and 100-mile geographic scope were also unreasonable and
unenforceable as a matter of state law. Respondents nevertheless
continued to impose Non-Compete Restrictions on all incoming security
guard employees that were identical to the restrictions the Michigan
court had determined to be unreasonable and unenforceable.
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\2\ Prudential Security, Inc. v. Pack, No. 18-015809-CB (Mich.
Cir. Ct. Dec. 13, 2018).
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Similarly, in 2019, a competing security guard company hired a
former Prudential Security employee who had become subject to a Non-
Compete Restriction upon joining Prudential Security as a security
guard. Prudential Security sued the former employee and the competing
company to enforce the Non-Compete Restriction, seeking injunctive and
monetary relief. As a result, the competing company terminated the
former Prudential Security employee.
In August 2022, Respondents sold their security guard assets to
another security guard company. At present, Respondents do not provide
security guard services. Former Prudential security guards who now work
for the buyer of the assets are not subject to Non-Compete Restrictions
with the buyer. But approximately 1,500 of Respondents' former
employees are still subject to Non-Compete Restrictions with
Respondents. In addition, Respondents Greg Wier and Matthew Keywell
have other business interests and may launch new businesses in the
future.
III. Legal Analysis
Section 5 of the FTC Act prohibits ``unfair methods of
competition.'' \3\ 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.\4\ The Commission and federal courts have
historically interpreted Section 5 to prohibit conduct that contradicts
the policies or the spirit of the antitrust laws, even if that conduct
would not violate the Sherman or Clayton Acts.\5\
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\3\ 15 U.S.C. 45(a).
\4\ 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,
Statement of the Commission On the Withdrawal of the Statement of
Enforcement Principles Regarding `Unfair Methods of Competition'
Under Section 5 of the FTC Act, at 3 (July 9, 2021) (``[T]he FTC Act
reflects a basic tradeoff: Section 5 grants the Commission extensive
authority to shape doctrine and reach conduct not otherwise
prohibited by the Sherman Act, but provides a more limited set of
remedies.'').
\5\ 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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[[Page 3740]]
The Commission's recent Section 5 Policy Statement describes the
most significant general principles concerning whether conduct is an
unfair method of competition.\6\ 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.'' \7\ A method of
competition is ``conduct undertaken by an actor in the marketplace''
that implicates competition, whether directly or indirectly.\8\ 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, interfering with
the normal mechanisms of competition, limiting choice, reducing output,
reducing innovation, or reducing competition between rivals.\9\ 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.\10\ 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.\11\ In addition, the Commission may
consider any asserted justifications for a particular practice.\12\ 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.'' \13\ 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.\14\ 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.\15\
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\6\ 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).
\7\ Id. at 8-10.
\8\ Id. at 8.
\9\ Id. 8-10.
\10\ Id. at 9.
\11\ Id. at 10.
\12\ 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.'').
\13\ Id. at 11.
\14\ Id.
\15\ Id. at 11-12.
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As described below, the factual allegations in the complaint would
support concluding that Respondents' use of Non-Compete Restrictions is
an unfair method of competition under Section 5. First, Respondents'
use of Non-Compete Restrictions is a method of competition. Respondents
knowingly imposed and enforced Non-Compete Restrictions on and against
their employees. By design, this conduct restricted the employment
options available to affected workers and therefore implicated
competition for labor. Respondents' imposition and enforcement of Non-
Compete Restrictions impeded the free movement of security guard
employees who sought to work elsewhere.
Second, Respondents' conduct is restrictive, exploitative, and
coercive. Respondents' actions tend to restrict the opportunity of
rival security guard companies to compete for the services of the
affected employees. Respondents' imposition of Non-Compete Restrictions
on their workers was also exploitative and coercive. Non-Compete
Restrictions, by reducing workers' negotiating leverage vis-[agrave]-
vis their current employers, tend to impair workers' ability to
negotiate for better pay and working conditions.\16\ Here according to
the complaint, Respondents' security guard employees--who were all
subject to Non-Compete Restrictions as a condition of employment--
earned low wages, were not permitted to negotiate the terms of the Non-
Compete Restrictions, and did not consult attorneys before joining
Prudential. By contrast, Respondents were repeat players, experienced
in using and enforcing Non-Compete Restrictions. These allegations
support a finding of considerable imbalances in economic power and
bargaining power at the time that the employees became subject to the
Non-Compete Restrictions. This power imbalance is further evidenced by
the fact that the employees did not receive any money, job security, or
other compensation in exchange for being subject to the Non-Compete
Restrictions.
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\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.]'').
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Respondents' enforcement of the Non-Compete Restrictions, as
alleged in the complaint, was likewise exploitative and coercive. As
described above, Respondents enforced Non-Compete Restrictions against
security guards to discourage, delay, and prevent them from accepting
offers of other employment. Respondents' threats and lawsuits aimed to
force workers into forgoing job opportunities that offered higher pay
and better working conditions as compared to Respondents' jobs. The
coercive effect of these threats relied, critically, on the affected
workers' relatively vulnerable economic positions. Workers subject to
Respondents' enforcement actions were particularly susceptible to
economic instability once they had left their prior positions:
Respondents' Non-Compete Restrictions foreclosed the very job
opportunities that likely would have provided the workers with the best
alternatives to continued employment with Respondents--jobs in the same
industry in the same broad geographic area.
Third, Respondents' use of Non-Compete Restrictions negatively
affects competitive conditions. 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.''
\17\
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\17\ 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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[[Page 3741]]
In general, in matching markets, higher-quality matches tend to
result when both sides--here, workers and employers--have more options
available to them.\18\ 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.\19\
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\18\ 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.
\19\ 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
like those used by Respondents impede and undermine competition in
labor markets.\20\ In the aggregate, Non-Compete Restrictions reduce
competition for workers by limiting the choices of workers and rival
employers. Research suggests that Non-Compete Restrictions measurably
reduce worker mobility,\21\ lower workers' earnings,\22\ and increase
racial and gender wage gaps.\23\ At the individual level, a Non-Compete
Restriction forces 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,\24\ thereby reducing workers' bargaining
leverage with their current employers and resulting in lower wages,
slower wage growth, and less favorable working conditions.\25\
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\20\ See, e.g., Dep't of the Treasury, Report, The State of
Labor Market Competition, supra note 18, at 5-7.
\21\ 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).
\22\ Michael Lipsitz & Evan Starr, Low-Wage Workers and the
Enforceability of Noncompete Agreements, 68 Mgmt. Sci. 143, 144
(2021); Johnson, Lavetti, & Lipsitz, supra note 21.
\23\ Johnson, Lavetti, & Lipsitz, supra note 21.
\24\ 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.
\25\ See, e.g., Johnson, Lavetti, & Lipsitz, supra note 21;
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, as described above, Respondents' imposition and enforcement
of Non-Compete Restrictions deprived Respondents' former employees of
the benefits of competition, leaving them with lower wages, less
favorable working conditions, and increased economic uncertainty.
Respondents' use of Non-Compete Restrictions also deprived competing
businesses of the benefits of competition by impairing their ability to
employ workers, including workers they had already located and
convinced to join.
Finally, as the complaints allege, any legitimate objectives of
Respondents' use of 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. As a Michigan state court concluded in 2019, there was
``nothing in the employment, training or knowledge of [Respondents'
security guards] which would warrant enforcement of a non-compete.''
\26\
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\26\ Supra note 2.
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IV. Proposed Order
The proposed order seeks to remedy the unfair method of competition
alleged by the Commission in its complaint and to prohibit Respondents
from entering, maintaining, enforcing, or attempting to enforce any
Non-Compete Restriction, or communicating to any employee or other
employer that the employee is subject to a Non-Compete Restriction.
These injunctive provisions, contained in Section II of the proposed
order,\27\ are intended to ensure that Respondents' current, former,
and future employees will be free to seek employment, start their own
businesses, or otherwise compete with Respondents upon leaving
Respondents' companies. These provisions would apply to any business
that Respondents Greg Wier and Matthew Keywell own or control in the
future and would also include any future business of Prudential.
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\27\ Decision and Order Sec. II.
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Paragraph III.A of the proposed order requires Respondents to
promptly send a letter describing the Commission's actions to each
employee who is or was party to a Non-Compete Restriction at any point
during the last two years.\28\ The letters state that Respondents will
not enforce any Non-Compete Restriction against the recipients and
clarify that Respondents cannot prevent the recipients from ``seeking
or accepting a job with any company or person,'' ``running your own
business,'' or ``otherwise competing with companies that provide
security guard services.'' \29\ The restrictions in the proposed order
apply to Respondents Greg Wier and Matthew Keywell, the co-owners and
only officers of Prudential. Mr. Wier and Mr. Keywell continue to
control other businesses that employ workers and may, in the future,
come to control other business ventures. For these reasons, the
proposed order's definition of ``Respondents'' extends to any companies
or businesses that Mr. Wier or Mr. Keywell control.\30\
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\28\ Id. ] III.A.
\29\ Id. App'x A.
\30\ Decision and Order ]] I.C-E.
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Paragraph III.B requires Respondents, for the next 10 years, to
provide a clear and conspicuous notice to any new employees upon hire
informing them that they may ``seek or accept a job with any company or
person--even if they compete with [Respondents],'' ``run your own
business--even if it competes with [Respondents],'' or ``compete with
[Respondents] at any time following your employment.'' \31\ Paragraph
IV.A requires Respondents to void and nullify all of their existing
Non-Compete Restrictions without penalizing the affected employees.\32\
In addition, Paragraph IV.B requires the Respondents to provide a copy
of the complaint and order to any director, officer, or employee of a
Respondent who is currently responsible for hiring and recruiting, and
Paragraph IV.C requires Respondents to send the order and the complaint
to any Person who
[[Page 3742]]
becomes a director, officer, or employee with such responsibility.
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\31\ Id. ] III.B.
\32\ Id. ] IV.A.
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Other paragraphs contain standard provisions regarding compliance
reports, notice of changes in the Respondents, and access to documents
and personnel.\33\ The term of the proposed order is twenty years.\34\
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\33\ Id. Sec. Sec. IV-VII.
\34\ Id. Sec. X.
By direction of the Commission, Commissioner Wilson dissenting.
April J. Tabor,
Secretary.
Dissenting Statement of Commissioner Christine S. Wilson
Today, the Commission announced that it has accepted, subject to
final approval, a consent agreement with Prudential Security, Inc. The
consent resolves 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. This case, which alleges a stand-
alone violation of Section 5, is one of 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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One point is worth emphasizing: my vote to oppose issuance of the
complaint does not mean that I endorse or condone the conduct of
Prudential Security. The company required its security guards to sign
non-compete agreements that prohibited employees from accepting
employment with a competing business for two years following conclusion
of their employment with Prudential. Moreover, a liquidated damages
provision required employees to pay Prudential $100,000 for violations
of the non-compete agreement. Based on these facts, it seems
appropriate that a Michigan state court found that the non-compete
agreements were unreasonable and unenforceable under state law.\2\
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\2\ Complaint ] 22.
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Instead, my vote reflects my continuing disagreement with the new
Section 5 Policy Statement and its application to these facts. When it
was issued, I expressed concern that the Policy Statement would be used
to condemn conduct summarily as an unfair method of competition based
on little more than the assignment of adjectives.\3\ Unfortunately,
that is the approach taken in this case.
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\3\ See Christine S. Wilson, Comm'r, Fed. Trade Comm'n,
Dissenting Statement Regarding the ``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/P221202Section5PolicyWilsonDissentStmt.pdf.
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The Complaint offers no evidence of anticompetitive effect in any
relevant market. According to the Complaint, Prudential's use of non-
compete agreements ``has harmed employees'' by limiting their ability
to work for other firms in the security guard industry.\4\ It asserts
that Prudential's use of non-compete agreements is ``coercive and
exploitative'' and ``tends to negatively affect competition
conditions'' \5\--but it appears that those ``competition conditions''
pertain only to individual employees. Similarly, the Complaint offers
only a conclusory assertion that ``[a]ny possible legitimate objectives
. . . could have been achieved through significantly less restrictive
means, including . . . confidentiality agreements that prohibited
disclosure of any confidential information.'' \6\ This assertion is
unsubstantiated.
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\4\ Complaint ]] 23, 25.
\5\ Complaint ] 29.
\6\ Complaint ] 26.
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Another aspect of the case also concerns me. This enforcement
action is designed not to provide effective relief but instead to
signal activity with respect to non-compete agreements in the
employment arena. As the Complaint describes, Prudential sold the bulk
of its security guard business to another security guard company, Titan
Security Group. The former Prudential security guards who now work for
Titan are not subject to non-compete agreements.\7\ Moreover, now that
Prudential no longer provides security guard services, there is no
reason for the company to seek to enforce non-compete agreements
against former Prudential security guards who did not move to Titan.
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\7\ Complaint ] 16.
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I wish it were accurate to say that this case (with apologies to
Shakespeare) is a tale of sound and fury, signifying nothing.
Unfortunately, it has great significance: it foreshadows how the
Commission will apply the new section 5 Policy Statement. Practices
that three unelected bureaucrats find distasteful will be labeled with
nefarious adjectives and summarily condemned, with little to no
evidence of harm to competition. I fear the consequences for our
economy, and for the FTC as an institution.
[FR Doc. 2023-01093 Filed 1-19-23; 8:45 am]
BILLING CODE 6750-01-P