February 25, 2020

Antitrust: FTC Ratchets Up Scrutiny of M&A Non-Compete & No-Poach Clauses

This Sidley memo says that the FTC has been ratcheting up its scrutiny of non-compete & “no-poach” clauses in acquisitions agreements.  Here’s the intro:

In the span of five months, the U.S. Federal Trade Commission (FTC) brought two cases alleging that noncompete and no-poach clauses contained in acquisition agreements violated antitrust laws. In September 2019, the FTC filed a complaint challenging an allegedly unreasonable noncompete clause in an underlying acquisition agreement, and in January 2020, the FTC filed a complaint alleging that two merging parties substantially lessened competition by entering into a series of unlawful noncompetes and no-poach agreements pursuant to the parties’ underlying transactions.

These complaints follow modifications to reporting instructions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) that now require filers to submit to the antitrust agencies all noncompete agreements between the parties when notifying a reportable transaction.

Viewed along with the changed HSR Act reporting obligations, the FTC’s recent challenges show that acquisition agreements have become increasingly fertile grounds for antitrust authorities to focus their broader efforts against unreasonable noncompete, no-poach and similar agreements.

These challenges don’t come as a surprise –  the FTC recently blogged guidance on the use of non-competes and non-solicit agreements in M&A transactions, and emphasized that it will assess whether “they are ‘reasonably necessary’ for the deal & whether they are ‘narrowly tailored’ to the circumstances surrounding the transaction.”

John Jenkins