Judging from a number of enforcement actions commenced in the last 6 months alone, the FTC has made clear that even without the benefit of the nationwide noncompete ban it sought, employers' grossly overreaching noncompete agreements still won't be tolerated.
The FTC's Action Against Rollins, Inc.
Consider the following action that the FTC commenced in April against Rollins, Inc. ("Rollins"), wherein the FTC notes that Rollins is one of the largest pest-control companies in the country, with over 700 locations and over 18,000 employees. Turning to its noncompete agreements, the Complaint alleges as follows:
A longstanding Rollins policy required all newly hired employees to enter Non-Compete Agreements, regardless of their position or responsibilities. These agreements have typically taken the form of a clause that prohibited, for two years following the conclusion of employment with Rollins, the employee from working in the pest-control industry within a predetermined distance – usually a 75-mile radius around the Rollins location at which the employee worked, but often a multi-county region. The vast majority of Rollins’ more than 18,000 employees, as well as many thousands of former employees, with limited exceptions that depend on the employee’s location of employment, were subject to Non-Compete Agreements. In total, many thousands of current and former Rollins employees entered a binding employment agreement containing a Non-Compete Agreement purporting to severely limit their job mobility for up to two years post-employment.
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Rollins applied its Non-Compete Agreements without individualized consideration of an employee’s role. The Non-Compete Agreements covered a broad range of employees, including pest-control technicians, customer-service representatives, and other employees earning relatively low wages. Technicians and customer service representatives accounted for the bulk of Rollins employees subject to Non-Compete Agreements. Rollins imposed Non-Compete Agreements on employees who had no ability to negotiate the Non-Compete Agreement with Rollins. Employees generally received no incremental consideration, such as extra compensation, for signing the Non-Compete Agreement. Many Rollins employees were asked to sign a Non-Compete Agreement with little or no opportunity to fully consider and understand the agreement. For instance, some Rollins employees signed a Non-Compete Agreement after their former employer was acquired by Rollins and were told to do so in the field or on the job, without time for reflection. Some Rollins employees believed that if they did not sign the Non-Compete Agreement, Rollins would fire them.
Here's where Rollins, from the perspective of the FTC, crossed the proverbial line, and violated Section 5 of the FTC Act, as amended, 15 U.S.C. § 45:
Any procompetitive objectives of Rollins’ conduct as alleged herein do not depend on the use and enforcement of Non-Compete Agreements and could have been achieved through significantly less restrictive means. Non-Compete Agreements are not reasonably necessary for Rollins to continue investing in developing confidential information. Rollins has published its pest control methods on its website and in YouTube videos. Narrowly tailored non-solicitation agreements are available to promote Rollins’ continued investments in growing and maintaining customer relationships and client goodwill, including through the development and protection of confidential customer lists or other competitively sensitive information.
The Takeaway for Employers from the Rollins Action
At the risk of stating the obvious, requiring low-wage pest control technicians and customer service representatives to execute noncompete agreements with a 75-mile radius was clearly a gross overreach by Rollins, and begging for regulatory trouble. This problem was compounded and exacerbated by Rollins when they embarked on an aggressive campaign of issuing cease and desist letters to employees for purported violations of the noncompete agreements. At some point, they should have assumed that one or more of these employees would either report their tactics to the FTC themselves, or consult an attorney sufficiently knowledgeable about the subject that would undertake that action on their behalf.
And the irony of all this is that had Rollins simply issued its noncompete agreements to those employees for whom it was theoretically appropriate and/or limited its restrictive covenants to nonsolicitation provisions - which would be aimed at protecting Rollins's legitimate business interests - they could have avoided this FTC fiasco altogether.
