FTC Cracks Down on Use of No-Hire Agreements As Anti-Competitive

On December 4, 2024, the Federal Trade Commission (“FTC”) ordered building services contractor Guardian Industries, Inc. (“Guardian”) to cease enforcement of no-hire provisions it included in customer service agreements with residential building owners and building management companies, prohibiting the hire of Guardian’s employees.

Guardian, which operates in New York and New Jersey, was on the receiving end of a complaint before the FTC, claiming that the use of no-hire agreements was anti-competitive because they “eliminate direct, horizontal, and significant forms of competition” in the building services industry.  Id. at ¶ 12.  The FTC explained that building owners and property management companies directly or indirectly employ almost 900,000 mostly low-wage workers in the United States in buildings of all kinds, and that Guardian and its customers are “direct competitors in certain labor markets” for workers in building services (e.g. custodial, maintenance, concierge, or security).  More specifically, under Guardian’s no-hire agreements, building managers are prohibited from hiring Guardian employees even after the termination of a building’s contract with Guardian, irrespective of the position they hold with Guardian and a position they might potentially want to accept with a building manager. In effect, the no-hire provisions operated as what is commonly referred to as “janitor clauses,” which indiscriminately restrict the scope of an employee’s future employment, unrelated to the company’s legitimate business interests, preventing an employee from moving to a competitor in any capacity (even as a janitor, hence the colloquial name).

As a result, by employing the use of no-hire provisions in its customer service agreements, the FTC alleged Guardian was inhibiting free competition and restricting employee mobility, in violation of Section 1 of the Sherman Act and Section 5 of the FTC Act.  In short, the FTC asserted that Guardian’s conduct constituted an “unfair method of competition” that harmed both consumers and employees in the building services industry.  Pursuant to the FTC’s proposed consent order, Guardian must cease and desist from—directly or indirectly—enforcing a no-hire agreement or communicating to any prospective or current customer that a Guardian employee is subject to a no-hire agreement. Nor can Guardian enforce or attempt to enforce, or even maintain or attempt to maintain, a no-hire agreement with its competitors.  Additionally, under the proposed consent order, Guardian must:

• Provide notice to customers and Guardian employees with a copy of the FTC’s order that shows that the no-hire agreement is no longer in effect.
• Post “clear and conspicuous” notice to each new Guardian employee upon hire and in any shared Guardian employee space, such as a breakroom, stating that their employment will not be subject to a no-hire agreement.
• Take all steps necessary to void and nullify all existing no-hire agreements and notify Commission staff in writing that all existing no-hire agreements are voided and nullified.
• Not require any person who is party to an existing no-hire agreement to pay any fees or penalties relating to a no-hire agreement.

FTC Chair Lina M. Khan issued a statement in support of the consent order, proclaiming:

[t]he ability to freely switch jobs is a pillar of economic liberty. Business practices that block people from doing so can depress workers’ paychecks and infringe on their freedoms. Challenging conduct that restricts workers’ mobility or undermines fair competition in labor markets has been a top priority of the Commission in recent years.

Commissioners Melissa Holyoak and Andrew Ferguson each issued separate dissenting statements in opposition to the FTC consent order, asserting that the FTC exceeded its authority in issuing the complaint against Guardian, failing to demonstrate violations of the Sherman Act and FTC Act.  

As we have extensively reported in the past year, the FTC is continuing to focus on the use of restrictive covenants (including, but not limited to, non-compete clauses) in agreements, and this recent order on the use of no-hire agreements between competitors is no exception. It remains to be seen whether this will be a continued focus of the FTC with the incoming Trump administration, especially given that as of December 10, Trump announced he selected Ferguson to replace Khan as the next chair of the FTC.  Arguably, the use of no-hire agreements is intended to protect the sanctity of a stable workforce, but a less draconian and more reasonable approach would likely be the use of narrowly drawn non-solicit provisions, tailored to express business interests it seeks to protect. Guardian may well have been able to maintain such a reasonable no-hire provision had its agreements not overreached so far; instead, this serves as a cautionary tale to businesses that impose covenants that extend beyond their legitimate business interests, even if they do not intend to enforce them (fully or at all).

For further guidance, you can learn about the use of employee restrictive covenants in our 50-State Non-Compete Desktop Reference, a trusted resource for navigating the complexities of non-compete, non-solicit, and trade secrets law across the United States.