On Friday, July 9, 2021, the Biden Administration released its executive order on “Promoting Competition in the American Economy.” We previously wrote about the forthcoming order and predicted that the executive order’s treatment of non-compete provisions would be a general call to rulemaking versus a more authoritative or immediate directive to the FTC.
We were correct. The executive order “encourage[s]” the FTC to “consider” exercising its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility” (and as readers of this blog know, many states are already taking steps to limit non-competes through legislation).
While this directive does not have any immediate impact on restrictive covenant enforcement, it does contain some signals of where rulemaking might end up. Notably, the executive order is framed in terms of “curtail[ing]” what the Biden Administration views as “abusive practices.” This language is much softer than Biden’s campaign pledge that he would work with Congress to ban non-compete agreements. It is even a bit watered down from how the administration described the executive order in its fact sheet, which indicated that the order “encourages the FTC to ban or limit non-compete agreements.” The executive order itself does not include a wholesale ban, and instead directs that rulemaking should “curtail” the “unfair use” of non-competes.
In another sense, the instruction to the FTC could invite broader analysis and rulemaking. The executive order also orders the FTC to consider using its rulemaking authority to address the “unfair use” of non-competes and “other clauses or agreements that may unfairly limit worker mobility.” The lead-up to the executive order’s release focused on non-competes specifically, but the rulemaking process could theoretically expand to other restrictive covenants, such as customer non-solicitation provisions, employee non-solicitation provisions, or even confidentiality provisions (although most states have excluded confidentiality provisions from statutory reform in this area).
The executive order also contains an indication that no-poaching agreements will continue to get additional federal scrutiny. The executive order “encourage[s]” the Attorney General and FTC to consider revising the Antitrust Guidance for Human Resource Professionals issued in October 2016. In this guidance, the government flagged the anticompetitive risks associated with wage-fixing and no-poaching agreements between competitors unless it related to a legitimate collaboration or other agreement. The government stated at the time that the DOJ would proceed criminally against naked wage-fixing or no-poaching agreements in the future.
And they have. Just over six months ago, the Antitrust Division at the Department of Justice obtained a two-count indictment against a health care company and a related entity for agreeing not to solicit senior-level employees. This indictment is the first criminal antitrust indictment for a no-poaching agreement between employers, and we may see a revision to antitrust guidance before the DOJ expands its civil and criminal enforcement efforts in this area.
The Biden Administration’s executive order is an affirmation of its intent to revive and expand antitrust law. Whether and to what extent this policy preference expresses itself in actual rulemaking remains to be seen, but this activity serves as yet another reminder that restrictive covenants are garnering additional administrative and legislative scrutiny. Please contact us or another member of Seyfarth’s award-winning Trade Secrets, Computer Fraud & Non-Competes team if you or your organization has questions about this executive order or would like to discuss reviewing your restrictive covenant program.