FTC Warning to Mortgage Services Company on Non-Competes & Similar Restrictions

The Federal Trade Commission's rule banning non-compete agreements is dead.  But the reports of that “death” may be greatly exaggerated. 

The FTC is still targeting companies that use non-competes and certain other restrictive covenants it views as anticompetitive – and a recent warning letter to a company in the industry proves it. 

What Happened 

Earlier this month, FTC Chairman Andrew Ferguson sent a formal warning letter to a national mortgage services provider after reviewing court filings from an ongoing lawsuit in which the company is trying to enforce a non-compete against a former employee. 

The letter raised several concerns: 

• The company appears to require all employees to sign non-competes regardless of role

• The FTC questioned whether the company's stated justifications could be achieved through narrower means

• The Chairman strongly encouraged the company to drop agreements that are not reasonably necessary and notify affected workers 

Why Lenders Should Care – Even Without Non-Competes

While non-competes tend to be less common in the mortgage space than other restrictive covenants, the warning letter makes clear that the FTC is focused more broadly on "noncompete agreements or other restrictive covenants." Non-solicitation agreements -- which are common across the lending space -- fall within that category.  The FTC's standard is whether a restrictive covenant is reasonably necessary to achieve a legitimate business interest.  Overbroad non-solicits likely do not clear that bar. 

What To Do Now 

• Audit your employment agreements. Non-competes, non-solicits, and NDAs should all be on the table. 

• Evaluate whether each restriction is tailored to the role. A blanket agreement applied to every employee is exactly what drew FTC scrutiny here. 

• Consider narrower alternatives. The FTC's own letter suggests that non-solicitation and non-disclosure agreements can often do the job that non-competes purport to do. 

• Think carefully before litigating to enforce. Companies that file lawsuits to enforce restrictive covenants are the ones attracting FTC attention. 

Bottom Line 

The FTC is organized, it is watching the mortgage industry, and it is bringing cases.  The scope of its scrutiny extends beyond non-competes to any restrictive covenant it views as overbroad.  If your employment agreements have not been reviewed with this in mind, now is the time. 

Need help with your employment agreements?  Contact troy@garrishorn.com.