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The FDIC is looking to eliminate the use of certain employee noncompetes as part of its merger review policy. When the agency requires divestitures, it proposes to also “generally require that the selling institution will not enter into [or enforce] non-compete agreements with any employee of the divested entity.”

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Whether the FDIC will adopt this as official policy, or has the power to do so, remains to be seen.&nbsp;

The writing is on the wall: Washington agencies are clearly on the lookout&nbsp;for ways to restrict the use of noncompetes,&nbsp;and now we know that not even the banking sector is safe from scrutiny. &nbsp;

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The ever-growing pool of Washington alphabet soup agencies targeting the use of employee noncompetes has expanded and now includes — <a href="https://www.bakerlaw.com/insights/ftc-seeks-to-ban-non-compete-restrictions-in-employment-contracts/" target="_blank" rel="noreferrer noopener">along with the FTC</a> and <a href="https://www.thebargainingtableblog.com/blogs/a-new-front-in-the-noncompete-wars-nlrbs-general-counsel-claims-noncompete-agreements-violate-the-labor-act/" target="_blank" rel="noreferrer noopener">NLRB</a> – the Federal Deposit Insurance Corporation (FDIC). The FDIC, which was established by the Banking Act of 1933 in response to the Great Depression and the associated run on the banks, once described its <a href="https://www.fdic.gov/bank/historical/firstfifty/chapter1.pdf" target="_blank" rel="noreferrer noopener">“mission”</a> as “to insure bank deposits and reduce the economic disruptions caused by bank failures.” However, this mission now also includes selectively banning the use of employee non-competes during the FDIC’s evaluation of bank mergers. The FDIC proposes to impose this anti-noncompete requirement in order for banks to gain its approval to merge under the authority&nbsp;granted by Section 18 of the Federal Deposit Insurance Act.

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Buried&nbsp;in the FDIC’s March 21 Request for Comment on <a href="https://www.fdic.gov/sites/default/files/2024-04/2024-03-21-notice-dis-b-fr.pdf" target="_blank" rel="noreferrer noopener">Proposed Statement of Policy on Bank Merger Transactions</a>, the agency identifies a new policy under consideration for adoption. Specifically, in the context of proposed mergers that “require divestitures of business lines, branches, or portions thereof as a means to mitigate competitive concern,” the agency&nbsp;proposes:

“[T]o promote the ongoing competitiveness of the divested business lines, branches, or portions thereof, the FDIC will generally require that the selling institution will neither enter into noncompete agreements with any employee of the divested entity nor enforce any existing non-compete agreements with any of those entities.” (Description of the Proposed Statement of Policy)

“The FDIC may require divestitures of business lines, branches, or portions thereof as a means to mitigate competitive concerns before allowing the merger to be consummated. In such cases, the FDIC will generally require that the selling institution will not enter into noncompete agreements with any employee of the divested entity nor enforce any existing noncompete agreements with any of those entities.” (Proposed Statement of Policy)

Notably, the FDIC’s proposed policy to ban the use of noncompetes considers only whether an individual was an “employee of the divested entity” and not – for example – the employee’s access to trade secrets and confidential information, compensation level, or even whether they stand to personally benefit from the transaction (notwithstanding their employment by a divested entity). There is no indication in the policy statement that this proposal would impact confidentiality agreements or non-solicitation or non-interference provisions. Whether the FDIC will follow through on its proposal or this exercise of authority will pass muster remains to be seen. However, what is clear is that Washington agencies are on the lookout&nbsp;for ways to restrict the use of noncompetes,&nbsp;and now we know that not even the banking sector will be spared this scrutiny.

The comment period is expected to remain open for 60 days after official publication of the proposal.

FDIC Looks to Ban Noncompetes in Bank Mergers

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