On March 21, 2024, the Federal Deposit Insurance Corporation (“FDIC”) issued its proposed Statement of Policy on Bank Merger Transactions (the “Proposal”) for public comment. The Proposal seeks to update guidance, last amended in 2008, on how it will evaluate bank merger transactions with respect to competition, financial resources, the convenience and needs of communities, financial stability, and money laundering. Included in the Proposal is a requirement that non-compete agreements cannot be enforced against impacted employees in certain types of transactions.

The Proposal provides that, where a merger is conditioned on divestitures, the FDIC will generally require that the selling bank neither enter into non-compete agreements with employees of divested entities, nor enforce existing non-compete agreements against those employees. As stated in the Proposal, the rule intends to “promote the ongoing competitiveness of the divested business lines, branches, or portions thereof.” The FDIC will also expect that divestiture, which is used as a tool to mitigate anti-competitive effects, be completed before it will allow the merger to be consummated. The impact of the Proposal will also extend to credit unions, as FDIC noninsured entities, to the extent a merger application is between an insured depository institution and a credit union. Interested parties may submit comments until 60 days after the Proposal’s publication in the Federal Register.

The FDIC is one of the three federal banking regulators with authority to approve bank mergers and is the first among the three to impose such restrictions on the use of non-compete agreements. Though the scope of the proposed non-compete rule is narrow, it bolsters a wider federal effort to promote competition in the labor markets as seen with the Federal Trade Commission’s (“FTC”) proposal to ban non-competes nationwide and the proposed merger guidelines from the FTC and Department of Justice that include heightened scrutiny of a transaction’s impact on labor market competition. As banks are generally exempted from coverage under the FTC, the FDIC’s restriction would complement any ban on non-competes put in place by the FTC by filling a potential gap in coverage. The FTC’s proposed ban on non-competes and the FDIC’s proposed rule limiting the enforcement of non-competes in the banking industry both reflect the federal government’s expansion into an area of labor law that is traditionally governed by state law. It is consistent, however, with a trend in several states toward restricting or entirely prohibiting non-compete agreements in employment agreements.

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