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ADventures in Law

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FTC Announces Action Against No-Hire Provisions Used by Building Services Contractor

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The Federal Trade Commission (FTC) voted 3-2 in favor of issuing a Complaint against a New York City-area building services contractor over its use of no-hire provisions in its customer service agreements.

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These no-hire provisions, which restrict an entity from hiring its vendor’s employees, have often avoided major scrutiny due to the understanding that vendors have a right to protect their workforce and avoid becoming a staffing agency for their clients.

FTC Commissioner Andrew Ferguson, whom President-elect Donald Trump has nominated to lead the agency in 2025, noted that no-hire clauses <em>could </em>violate the Sherman Act, but still voted against issuing the Complaint in this matter.

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In a divided party-line vote, the FTC recently <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/2410082_guardian_complaint.pdf" target="_blank" rel="noreferrer noopener">charged</a> Guardian Service Industries, Inc. (Guardian), a New York City-area building services contractor, with violating Section 1 of the Sherman Act and Section 5 of the Federal Trade Commission Act because of its alleged use of no-hire clauses in its customer service agreements with residential building owners. Even without the <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/2410082_guardian_order.pdf" target="_blank" rel="noreferrer noopener">proposed Consent Order</a> in place, Guardian has purportedly agreed to stop using these no-hire provisions.

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Guardian employs approximately 2,800 workers throughout New York and New Jersey to provide residential and commercial buildings with concierge, security, custodial, maintenance, engineering and related services. In some of its contracts with residential building owners, Guardian allegedly used no-hire clauses, which barred clients from hiring its staff members during the term of the contract and for a period of time after termination. These provisions are different from non-solicitation provisions, which typically only prohibit an employer’s direct or indirect outreach to an employee but don’t stop them from hiring the employee if they are contacted first.

The FTC alleges that Guardian’s use of no-hire provisions is an illegal restraint on competition because it deprives Guardian’s employees of job opportunities and the benefits of unrestrained competition, such as higher wages and better working conditions. The FTC also alleges that these clauses impede Guardian’s competitors from entering and expanding in the building services industry; deny Guardian’s employees access to other job opportunities and restrict their mobility; and cause lower wages and salaries, reduced benefits, less favorable working conditions and, among other things, personal hardship to Guardian’s employees. Notably, although the FTC’s action is limited to Guardian, the implications here could be much broader, as these kinds of no-hire provisions are often utilized when one employer provides its employees to another company in order to perform work or services.

Commissioner Andrew Ferguson, whom President-Elect Donald Trump announced as his planned FTC Chair, <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/guardian-ferguson-dissenting-statement-final.pdf" target="_blank" rel="noreferrer noopener">dissented</a> from the decision to issue the Complaint and took issue with the lack of facts indicating that Guardian’s no-hire clauses, as opposed to no-hire provisions generally, resulted in a violation of federal law. Commissioner Ferguson also said in his dissent that the Complaint was based on “hypothetical effects” and the “Complaint alleges nothing about the no-hire provisions’ effects ... direct evidence of anticompetitive effects, or of indirect, economic evidence of anticompetitive effects . . .. It does not even allege that Guardian has ever tried to enforce any of these agreements, nor does it allege that a single Guardian customer or worker believed Guardian would enforce any of these provisions.” In contrast, FTC Chair Lina Khan appeared to take a broader view, arguing that “[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.” Looking forward, Commissioner Ferguson said the FTC was “wise to focus its resources on protecting competition in labor markets” and that there are some circumstances where no-hire clauses can “undoubtedly” have anticompetitive effects that outweigh legitimate justifications. “Had the Complaint plausibly alleged anticompetitive effects outweighing procompetitive justifications, I would have voted for it.”

Under the proposed Consent Order, in addition to ceasing the use of no-hire provisions, Guardian must notify all employees and clients subjected to its no-hire provisions over the past three years that the clauses have been rescinded and will no longer be enforced, and the company must inform new hires that they are not subject to a no-hire obligation.

The FTC’s Complaint against Guardian is the latest action the agency has taken to crack down on perceived anticompetitive practices. Earlier this year, the FTC <a href="https://www.bakerlaw.com/insights/ftc-issues-final-rule-banning-non-competes/" target="_blank" rel="noreferrer noopener">proposed a rule</a> to ban nearly all noncompetition agreements, arguing that these contracts are an unfair method of competition and thus violated the FTC Act. Several courts have since <a href="https://www.bakerlaw.com/insights/stop-the-notices-to-employees-ftc-noncompete-rule-vacated-nationwide/" target="_blank" rel="noreferrer noopener">struck down</a> the proposed rule, although the FTC is appealing the rulings. The fate of those challenges remains uncertain in the coming Trump administration, which has <a href="https://www.bakerlaw.com/insights/the-future-of-noncompetition-provisions-in-a-trump-administration/" target="_blank" rel="noreferrer noopener">given mixed signals</a> regarding how it may ultimately approach the issue.

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