We work to keep security firms updated about the latest liability issues they may run across, and recently a piece of important news could make a big difference for some firms. The catalyst is a new action taken by the FTC, or Federal Trade Commission, that could directly affect how firms that hire security guards do business. At the heart of the issue are non-compete clauses that companies may be using in their contracts. Here’s what you should know.
What is a Non-Compete Clause?
This refers to language used in contracts that tries to prevent employees from working for a competing business or in a similar industry after they leave the company. It’s uncertain just how enforceable most non-compete language is (when tested in court, it rarely holds up). Some companies put non-compete clauses into contracts without thinking much about it, or as a way to try to protect employee retention. Companies that have seen high turnover in the past or who have lost skilled workers to competition may be more likely to insert non-compete language into their contracts. Now the FTC is stepping in with even clearer guidance on why this is a problem.
The Latest FTC Guidance on Non-Compete Clauses
In January 2023, the FTC announced several legal actions against both American businesses and specific individuals. The agency followed this up with statements on how the FTC was now approaching a specific problem – unlawful non-compete restrictions in worker contracts. The lawsuits focused on, among others, security guards. That could put firms at risk of future federal lawsuits if they use non-compete language, a risk that no business wants.
The FTC’s current actions include official complaints (something that can wreck a business’s reputation), and orders to cease enforcing any non-compete restrictions. They are also requiring companies to report the change to all employees affected by those restrictions. The security company in question was Prudential Security, Inc., of Michigan. Their non-compete language was particularly harsh, threatening security guards with a $100,000 fine for violating the restriction and suing or blocking those who ignored it. The company continued to enforce this language despite the state court deciding that it was unreasonable and unenforceable.
FTC Chair Lina M. Khan reported: “These cases highlight how noncompetes can block workers from securing higher wages and prevent businesses from being able to compete…I’m grateful to our talented staff for their efforts to vigorously enforce the law to protect workers and fair competition.”
Why The FTC Is Taking New Action
So, why is the FTC acting now? What problem does it have with this kind of language? The FTC’s argument comes down to several important points about why it believes non-compete clauses are a bad idea, especially under Section 5 of the FTC act.
The FTC wants to support worker movement:
The FTC believes that the market is healthier when employees have freedom of movement – that means, the ability to easily look for other job options, and move to different companies. The ability of workers to seek out higher wages, better benefits, a better workplace environment, etc., is very important to the FTC.
Restrictions can lead to lower wages and benefits:
On the other side of the coin, the FTC believes that non-complete clauses are lousy for the workplace. They may lead to employers not caring about the happiness of their employees, not raising wages to meet competitive levels, and other problems. This can affect the economy of the area, the health of the workers, and similar things that the FTC cares about.
Non-compete clauses cause difficulties with competition:
This may be the FTC’s most powerful argument, as it stems directly from the agency’s authority to investigate and deal with issues about competition. The FTC is saying that non-compete clauses make it difficult or impossible for new businesses to enter the market. If one security firm has a noncompete clause governing most of the skilled guards in the area, they essentially have a monopoly on labor in that community – a big problem in the FTC’s eyes. These restrictions can also make it difficult for competing businesses to grow or expand when they are ready to.
These contracts extend the reach of a company beyond its employees:
Non-compete language attempts to give businesses control over people who are no longer their employees. That can work for some cases, such as sharing sensitive company information with others. But when an employee’s freedom to find other work is restricted, that becomes a problem. The FTC doesn’t want companies to control or impede workers that are no longer a part of their organization.
If you are worried about liability issues for your security firm, we suggest a quick trip to an attorney with experience in your industry. It’s usually a simple matter for a lawyer to identify any non-compete language in a contract and remove it without affecting anything else – something that could have saved Prudential Security a lot of headaches. If your competitors use non-compete clauses in your area, your firm may even be able to leverage that to attract the most skilled guards to your company.