In brief
On Friday 16 June 2023, the Federal Trade Commission’s (FTC) Bureau of Competition (BC) issued a strong warning to companies regarding the inclusion of certain types of contract terms that can “impede investigations” and “are contrary to public policy and unenforceable.” Specifically, the announcement warned against confidentiality clauses, nondisclosure agreements, and “notice of agency contact” provisions, commonly used in business-to-business and employment contracts. Given the FTC’s stance, companies should take a precautionary approach when considering use of these clauses.
Key Takeaways
Companies should not interpret this announcement as a wholesale ban on commonly used confidentiality and notice provisions in non-disclosure and partner agreements. Indeed, these provisions often have benefits and can help protect confidential information through legal protections and notice. At the same time, companies should ensure that such provisions are not drafted in an overly broad manner. For example, contractual provisions that categorically prevent disclosure, including to a government agency conducting a lawful investigation, would likely conflict with the FTC’s policy. Likewise, contracting parties imposing such provisions should avoid employing these restrictions to limit information disclosures, to coordinate on messaging, or to directs partners to express particular views when they are communicating with the FTC or other regulatory bodies.
While this announcement should not require a massive overhaul of a company’s contractual practices, it should result in some fine-tuning. Companies should consult antitrust and competition counsel when seeking to include commonplace contractual terms that could potentially interfere with investigations. Likewise, individual employees bound by contracts with confidentiality and notice provisions should consult counsel prior to responding to any agency request for a voluntary interview.
In Depth
The FTC’s statement was accompanied by legal analysis titled “Contracts That Impede Bureau of Competition Investigations”. In the analysis, BC outlined concerns that confidentiality clauses, nondisclosure agreements, and “notice of agency contract” provisions in corporate contracts raise obstacles to conducting investigations and can have a chilling effect on voluntary cooperation and interviews. BC takes the position that any such contract terms are unenforceable, void, and contrary to public policy “to the extent they inhibit Bureau investigations”.
Voluntary interviews are one of many ways in which the FTC “get[s] up to speed-and stay[s] up to speed” during its investigations. BC explains that voluntary interviews are one of their less burdensome investigatory mechanisms to the compulsory alternatives—subpoenas and civil investigative demands. Voluntary interviews—BC argues—help to lighten the “unnecessary burden[] on marketplace stakeholders and Bureau staff”.
In the accompanying legal analysis, the FTC reasons that these contract clauses are void and unenforceable when “they purport to (1) prevent, limit, or otherwise hinder a contract party from speaking freely with the FTC; or (2) require a contract party to disclose anything to an investigation target about the FTC’s outreach or communications”. The analysis does not delve into the specifics of how notice requirements interfere with the FTC’s ability to conduct voluntary interviews, or any specific examples in practice of where their staff have encountered these clauses. However, it is likely that the FTC is concerned about companies pressuring their contractors not to cooperate or coordinating on messaging. The FTC argues that courts have previously struck down contractual clauses when they have the effect of “prevent[ing] a government agency from seeking and obtaining complete, candid information”.
Nonetheless, it is apparent that broadly worded provisions that would prevent contracting parties from disclosing information or speaking with FTC staff would present concerns under this guidance. In support, the FTC cites case law at the district court level where a court voided an employment contract provision that required giving notice and copies of all documents “served upon them by any court, agency, or regulatory authority.” The BC also cites examples of voided contractual provisions in cases pursued by other agencies, such as the U.S. Securities and Exchange Commission, National Labor Relations Board, Federal Aviation Administration, and the National Highway Transportation Safety Administration. Those agencies have taken similar views that such contractual provisions interfere with investigations and are not enforceable.
Ultimately, the FTC’s announcement is consistent with its broader policy goals of ensuring that companies can freely cooperate with investigatory efforts without any obstructions or legal obstacles.
