On March 7, 2022, the US Department of the Treasury issued a report entitled “The State of Labor Competition,” (the “Report”) making clear once again that the regulation of anti-competitive practices, including curtailing the use of non-competition covenants, continues to be a core component of President Biden’s agenda. The Report states that its purpose “is to summarize the prevalence and impact of uncompetitive firm behavior in labor markets,” focusing predominantly on practices that firms use to restrain competition for workers in order to lower compensation, including in particular no-poach agreements and non-compete agreements. Citing various research studies and data points, the Report asserts in particular that the lack of labor market competition decreases wages “at roughly 20 percent relative to the level in a fully competitive market,” noting in particular the impact of these practices on low-income workers, workers of color, women, and immigrants, and their contribution generally to income inequality and economic stagnation.
As we previously reported, on July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy, which, among other things, instructed the FTC to consider using its authority to address the “unfair use of non-competes and other clauses or agreements that may unfairly limit worker mobility.” In early December 2021, the DOJ and FTC Public Workshop, entitled “Making Competition: Promoting in Labor Markets,” comprised of academics, lawyers, economists, policy experts, and labor leaders, issued statements further underscoring the Biden Administration’s agenda of using a government approach through agency enforcement scrutinizing and limiting the use of restrictive covenants under the rationale that such measures will encourage competition and workforce mobility.
The Report underscores this same approach, charging federal agencies to implement antitrust measures, including criminalizing market collusion among competitors who seek to price fix the labor market through no-poach agreements. Over the past year, the Antitrust Division has already charged at least five criminal cases, including indictments against companies and individuals, alleging such collusion in various industries, including physical therapy, home health care services, and aerospace, with additional investigations currently pending.
With respect to non-compete covenants, the Report similarly states in its executive summary that “[as] part of his Executive Order on competition, the President encouraged the Federal Trade Commission to consider banning or limiting the use of non-compete agreements.” The Report appears largely concerned in particular with “the huge number of low-skill workers subject to non-competes,” suggesting that they are routinely applied to “workers who do not possess trade secrets or customer lists and are not given specialized training.” The Report even takes aim at non-disclosure agreements, observing that they “can be so broad as to effectively operate as non-compete agreements,” and “prevent outsiders from learning about undesirable firm employment practices.” The Report concludes by supporting legislation designed to enhance worker bargaining power, including protecting workers’ rights to organize, and restricting use of arbitration clauses and class action waivers. The Report further advocates civil enforcement by the DOJ and FTC in cases where the effect of enforcement prevent workers from earning a living or violate public policy.
It should be noted, however, that the Report does not appear to take into account any countervailing perspectives, in particular the assertion that reasonably drafted non-compete agreements protect an employer’s unique competitive information, including trade secrets and confidential information, from misuse, as advocated by the US Chamber of Commerce, and are often critical in high-skill high-paying jobs. Instead the Report appears to be in large part a reaction to the abusive use of restrictive covenants against low wage workers, citing in particular their use in the fast-food industry.
President Biden’s policy objectives are not limited to this administration. We have previously reported on the growing trend of state legislatures enacting statutes taking aim at non-compete agreements, particularly when used by employers against lower waged workers. Similarly, at the federal level, there is an increased effort to enact legislation aimed at curtailing, or even banning entirely, the use of non-compete covenants by employers, uniformly across all states that appears to have some bipartisan support. While none of these bills have succeeded or are expected to pass, policy activists behind such efforts continue to gain traction, pushing the narrative that non-compete covenants unreasonably stifle competition and workforce mobility. We will continue to monitor this trend and its impact on judicial enforcement of restrictive covenants.