On July 9, 2021, President Joe Biden signed a sweeping Executive Order on “Promoting Competition in the American Economy”. The Executive Order includes 72 initiatives by more than a dozen federal agencies to address perceived competition problems across the U.S. economy, and signals increased enforcement of the antitrust laws in multiple industries (including agriculture, finance, healthcare, and technology). For employers, the Executive Order targets competition in labor markets in at least two ways by (1) directing the Federal Trade Commission (“FTC”) to consider curtailing the use of non-compete agreements; and (2) directing the FTC and the Department of Justice (“DOJ”) to consider revising their previous guidance to human resources professionals to prevent employers from sharing information about wages and benefits.
Non-compete agreements are used by employers to protect their legitimate interests in trade secrets and other confidential business information, customer relationships and goodwill, and investments in employee training. The Executive Order, however, argues that non-compete agreements stifle competition and restrict workers’ ability to change jobs. Accordingly, the Executive Order provides:
To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.
Importantly, the Executive Order does not implement any immediate restrictions on non-compete agreements, but instead directs the FTC to consider the issue. If the FTC decides to act, it could ban most or all non-compete agreements or focus on restricting non-competes for low wage workers and/or non-exempt employees. We think the latter approach is more likely, and several states (including Nevada and Virginia) have recently passed such laws. In that regard, non-compete agreements have been traditionally regulated by the states, by either their courts or their legislatures. As such, any regulatory action by the FTC – especially a wholesale ban on the use of non-competes – would likely raise federalism concerns and face legal challenges.
The FTC has not issued a statement or other formal response to the Executive Order’s directive on non-compete agreements or indicated when it might take up the issue. If and when it does, such regulatory action would need to go through the full rulemaking process and could take several years. Therefore, absent legislative action by Congress, we do not expect any restrictions on the use of non-compete agreements enacted at the federal level in the near future.
In addition to encouraging the FTC to consider regulating non-compete agreements, the Executive Order encourages the DOJ and the FTC to consider revising the Antitrust Guidance for Human Resources Professionals (“Guidance”) in order to “better protect workers from wage collusion.” In October 2016, the DOJ and FTC jointly issued the Guidance, which stated the intent of the DOJ to bring criminal prosecutions against participants in no-poaching and wage-fixing agreements. The Guidance also cautioned employers that sharing information about wages and benefits with each other could subject them to civil antitrust liability, but noted that information exchanges may be lawful in certain circumstances if managed by a neutral third party. The White House, however, argues that such third-party information exchanges may be used to collaborate to suppress wages and benefits. Therefore, the Executive Order calls on the DOJ and FTC to strengthen the Guidance to prevent employers from collaborating by sharing wage and benefit information.
We will be monitoring the FTC and DOJ and will keep you advised of their actions to implement the Executive Order. If you have any questions about the Executive Order or other issues involving non-compete agreements, please contact any member of our Labor and Employment Practice Group.