Biden Administration Announces Plans to Curtail Non-Compete Agreements for Workers
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
July 12, 2021 Labor and Employment Trade Secrets and Restrictive Covenants Biden Administration Announces Plans to Curtail Non- Compete Agreements for Workers By: Debbie L. Berman, Jason M. Bradford, Margaret M. Hlousek, Joseph J. Torres, and Andrew W. Vail On Friday, July 9, 2021, President Biden signed a sweeping Executive Order with the stated purpose of seeking to increase competition in the American economy and counter corporate consolidation.[1] The Executive Order is a further signal that the Biden administration intends to take an aggressive view of federal antitrust laws, with the intent of increasing competition in the labor market. Specifically, the Executive Order directs the Federal Trade Commission to issue rules curtailing the “use of non- compete clauses and other clauses or agreements that may unfairly limit worker mobility.”[2] As we discuss below, the new Executive Order is an extension of the existing trend of enforcement against other restrictive agreements like anti-poaching agreements. Employers should consider what actions they should take to prepare for possible regulatory changes. The Biden Administration Indicates Antitrust Enforcement in the Labor Market is a Top Priority In light of the widespread proliferation of restrictive covenants in employment contracts, the Executive Order’s provisions relating to non-compete agreements will affect many employers. According to the White House, approximately half of employers enter non-compete agreements with at least some of their workers.[3] A 2019 study from the Economic Policy Institute (EPI) estimated that between 36 million and 60 million workers are subject to non-compete agreements.[4] Moreover, the EPI found evidence that use of such agreements is growing.[5] The White House takes the position that non-compete agreements are a barrier for workers to change jobs to better-paying options.[6] The government contends that banning or limiting non-compete agreements will make it easier for workers to change jobs and obtain higher wages.[7] Although we will not know the full impact of the Executive Order until the Federal Trade Commission issues updated rules, we expect the government will closely examine non-compete agreements and will ban them in many circumstances, particularly with low wage workers where there may be limited justification for imposing non-compete agreements. The Executive Order also creates a White House Competition Council, consisting of over half of the cabinet secretaries, to coordinate the federal government’s response to allegedly unfair competition. The fact that the Council has so many cabinet members underscores the seriousness with which the Biden administration is making antitrust enforcement and expansion a priority.[8] The Executive Order Continues the Trend of Government Action against Non-Competition Agreements The broad reach of the Executive Order signals a continued focus on what the federal government views to be anti-competitive actions in the labor market; this focus began during the Obama administration and continued during the Trump presidency with prior policies addressing anti-poaching and anti-solicitation agreements among competitors.
For example, in 2016 the Department of Justice Antitrust Division announced a new initiative to
aggressively investigate and target employers entering into anti-poaching agreements for civil and
criminal violations of federal antitrust laws.[9] The Department of Justice has taken the position that any
agreement between employers or potential employers not to hire each other’s workers or particular
workers is a per se violation of federal antitrust laws. In April 2020, the Department of Justice renewed
its position in a joint statement with the Federal Trade Commission and stated that it intended to
“criminally prosecute companies and individuals who enter into naked wage fixing and no-poach
agreements. . . . Companies and individuals involved in the hiring, recruiting, retention, or placement of
workers should be aware that anticompetitive conduct runs the risk of civil and/or criminal liability.”[10]
Until recently, the Department of Justice and Federal Trade Commission’s focus has been solely civil.
However, in January 2021, a federal grand jury indicted an outpatient medical care center operator in
the Department of Justice’s first criminal anti-poaching and non-solicitation case.[11] The defendants
were charged with violations of Section 1 of the Sherman Anti-Trust Act for allegedly entering into
agreements with two other healthcare companies not to poach each company’s senior-level employees.
[12]
Actions Employers May Take to Protect Confidential Information
One legitimate justification from employers for using such agreements is to protect trade secrets and
other confidential information that other companies improperly may try to exploit by hiring workers away
from their competitors. With the federal and state government’s increasing activism[13] in connection
with non-competes, even though they are agreements between private parties, employers should not
wait for the Federal Trade Commission’s regulations to re-evaluate existing non-compete agreements.
Even with the uncertainty concerning the enforceability of certain non-competes in the current
regulatory climate, employers should strongly consider and evaluate additional tools to protect trade
secrets, proprietary information, and other confidential information.
While awaiting final regulations regarding non-competition agreements, employers should consider at
least the following steps to protect confidential and proprietary information:
Limit or discontinue blanket non-competition agreements especially for low wage workers;
Clearly define what information is confidential in the business enterprise and take steps to maintain
the secrecy of such information by implementing confidentiality policies and procedures, training
workers on managing confidential information, and implementing security measures such as
limiting authorized access to confidential materials and setting up technical protections like
passwords and encryption;
Identify specific workers or work groups whose job responsibilities require access to or possession
of confidential information and concentrate on taking steps with those employees to protect your
information, including mandating those workers sign confidentiality agreements;
Focus any continued use of non-competes on high ranking workers with access to confidential
information and appropriately and narrowly tailor the covenants to protect that information from
being used adversely;
Consider whether to pay the employee additional consideration to protect confidential information
through, for example, the use of garden leave where former workers are paid to stay out of the
work force at competitive wages for a limited period of time;
Implement cost-effective, routine forensic investigations of departing workers who have access to
highly confidential information to ensure confidential information does not leave when workers do.
If any irregularities come to light, employers can probe more closely while focusing on theft of trade
secrets or confidential information and potential claims for violating confidentiality agreementsrather than non-competes; and
Review employment agreements and manuals to ensure they include Defend Trade Secrets Act
employee notice of immunity provisions to collect exemplary damages and attorney’s fees in the
event any trade secrets are misappropriated.
Outside counsel can help companies navigate the changing regulatory landscape and provide broad
industry perspective on common issues with non-competes. Jenner & Block lawyers stand ready to
assist.
Contact Us
Debbie L. Berman
dberman@jenner.com | Download V-Card
Jason M. Bradford
jbradford@jenner.com | Download V-Card
Margaret M. Hlousek
mhlousek@jenner.com | Download V-Card
Joseph J. Torres
jtorres@jenner.com | Download V-Card
Andrew W. Vail
avail@jenner.com | Download V-Card
Meet Our Labor and Employment Team
Meet Our Trade Secrets and Restrictive Covenants Team
Practice LeadersEmma J. Sullivan Joseph J. Torres Co-Chair, Labor and Co-Chair, Labor and Employment Employment esullivan@jenner.com jtorres@jenner.com Download V-Card Download V-Card Debbie L. Berman Nick G. Saros Andrew W. Vail Co-Chair, Trade Secrets and Co-Chair, Trade Secrets and Co-Chair, Trade Secrets and Restrictive Covenants Restrictive Covenants Restrictive Covenants dberman@jenner.com nsaros@jenner.com avail@jenner.com Download V-Card Download V-Card Download V-Card [1] Executive Order on Promoting Competition in the American Economy, (July 9, 2021), https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on- promoting-competition-in-the-american-economy/. [2] Non-Competition EO § 5(g). [3] White House, Fact Sheet: Executive Order on Promoting Competition in the American Economy (July 9, 2021), https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet- executive-order-on-promoting-competition-in-the-american-economy/. [4] Alexander J.S. Colvin & Heidi Shierholz, Econ. Policy Inst. Noncompete Agreements (Dec. 10, 2019), https://www.epi.org/publication/noncompete-agreements/ (noting the American workforce in 2019 included approximately 130 million people). [5] Id. [6] Fact sheet, supra note 3. [7] Id. [8] Non-Competition EO § 4. [9] Department of Justice & Federal Trade Commission, DOJ’s Antitrust Guidance for Human Resource Professionals (Oct. 2016), https://www.justice.gov/atr/file/903511/download. [10] Department of Justice & Federal Trade Commission, Joint Antitrust Statement Regarding COVID- 19 and Competition in Labor Markets (Apr. 2020), https://www.ftc.gov/system/files/documents/advocacy_documents/joint-statement-bureau-competition- federal-trade-commission-antitrust-division-department- justice/statement_on_coronavirus_and_labor_competition_04132020_final.pdf. [11] Indictment, United States of America v. Surgical Care Affiliates, LLC, No. 3-21CR0011-L (N.D. Tex. Jan. 5, 2021), ECF No. 1. [12] Id. [13] See Client Alert: Illinois Seeks to Expand Restrictions on Non-Competes (Jun. 14, 2021) https://jenner.com/library/publications/21028; Client Alert: FTC May Wade into Enforceability of Non-
Compete Agreements (Jan. 16, 2020) https://jenner.com/library/publications/19503; Client Alert: Employers Take Note: State AGs Urge FTC to Step up Scrutiny of Employee Restrictions (Aug. 1, 2019) https://jenner.com/library/publications/19184. © 2021 Jenner & Block LLP. Attorney Advertising. Jenner & Block is an Illinois Limited Liability Partnership including professional corporations. This publication is not intended to provide legal advice but to provide information on legal matters and firm news of interest to our clients and colleagues. Readers should seek specific legal advice before taking any action with respect to matters mentioned in this publication. The attorney responsible for this publication is Brent E. Kidwell, Jenner & Block LLP, 353 N. Clark Street, Chicago, IL 60654-3456. Prior results do not guarantee a similar outcome.
You can also read
