FTC increases scope of investigations regarding non-competes

On Behalf of | Aug 12, 2022 | Business Disputes, Outsourced Business Counsel |

In July of 2021, President Joe Biden instructed the Federal Trade Commission (FTC) to investigate the abuse of non-compete clauses and other clauses that unfairly prevent workers from seeking other employment opportunities. One year later, the FTC is moving beyond post-employment covenants to include selling business non-competes, which involve sellers of a business agreeing not to compete.

These business non-competes are less scrutinized than post-employment covenants. The thinking here was that those who buy a business should be allowed to protect their business interests and not submit themselves to having newly purchased assets diminishing in value. The courts would typically view the new owner protections as maintaining the integrity of the transaction and business interests.

The FTC initiated a complaint involving Corrigan Oil Company’s sale of 60 fuel outlets in Michigan and Ohio for $94 million to ARKO Corp in 2021. The deal included not competing by advertising or selling fuel near the outlets it sold. Additionally, Corrigan was not to compete in another 190 GPM locations – it is an ARKO subsidiary – unrelated to the purchase. The FTC alleges that the deal led to a highly concentrated market that quashed free market competition and enabled ARKO to raise its prices in the applicable markets. The FTC voted 5-0 to issue a complaint and accepted the Agreement Containing Consent Order for public comment.

The FTC asked the following from ARKO:

  • Return five locations
  • Amend the non-compete to the five returned locations.
  • Limit the non-compete terms
  • Obtain approval before ABKO buys other retail fuel outlets within three miles of the five locations
  • Not enforce or enter into non-compete agreements involving retail fuel outlets
  • Notify third parties with similar non-competes

FTC puts others on notice

This action highlights the overly restrictive nature of some asset purchase agreements. It means more scrutiny of mergers and business sale deals in the future. Companies engaging in drafting these types of non-competes will need to rethink their terms when structuring agreements. As always, it is essential to discuss this issue with the attorneys involved in the business merger or acquisition.