Biden's executive order takes aim at non-competes

On July 9, 2021, President Biden signed an Executive Order seeking to curtail the use of non-compete agreements and other terms of employment that arguably limit worker mobility—an area of employment law that has traditionally been regulated by the states, not the federal government. The Order is not a mandate, but rather a roadmap that appears to be a policy directive only.

By its own terms, the Order "does not[] create any right or benefit, substantive or procedural, enforceable at law or in equity by any party . . . ." All eyes will be on the Federal Trade Commission (FTC), the agency tasked with defining what, if any, non-compete agreements may be deemed unenforceable or anticompetitive.

A Statement of Sweeping Policy

The Order is broad in scope and aimed at creating an open and competitive economy, including 72 initiatives that impact a wide swath of economic sectors, including agriculture, healthcare, and technology. In the employment context, the Order strives to ensure "a competitive marketplace [that] creates more high-quality jobs and the economic freedom to switch jobs or negotiate a higher wage."

The Order notes that non-compete agreements restrict workers' ability to change jobs, seek higher wages, and bargain for better work conditions. While President Biden's remarks on July 9 suggest that non-compete agreements are fair when they protect company trade secrets or other sensitive business information, his remarks also reflect what we may expect from the FTC, that is requiring non-compete agreements for all employees (particularly hourly employees who earn low wages) may be an unfair use.

To that end, federal enforcement could align the rest of the country with California, which has banned non-competes since 1872, with certain limitations relating to sale of a business and protection of trade secrets.

Action Primarily Through Existing Antitrust Laws and Government Procurement

The statutory basis for the Order is found in federal antitrust laws, including the Sherman Act, the Clayton Act, and the Federal Trade Commission Act. The Order expressly directs action from the FTC, which regulates unfair business practices, including those within the labor market. We anticipate, however, other agencies (including the Department of Labor) will take action to curtail non-competes as well.

Beyond regulatory actions taken under the guise of federal antitrust laws, the Order also contemplates that agencies can "influence the conditions of competition . . . through the procurement process." Thus, to the extent that efforts to regulate private agreements, including non-competes, fail under federal antitrust authority, federal contractors should still expect that additional obligations may be imposed through the federal procurement system.

Creation of a White House Competition Council

The Order establishes a White House Competition Council that will develop procedures and best practices for federal agencies to further the policy objectives of the Order. The Council is empowered to implement the administrative actions identified in the Order—although it initially appears that the substantive implementation of those administrative actions will occur within (and among) the federal agencies themselves. Importantly, the Council is prohibited from discussing any current or anticipated enforcement actions.

The Council shall be chaired by the Assistant to the President for Economic Policy and Director of the National Economic Council. Its members will include many members of the President's Cabinet, including the Secretary of Treasury, Secretary of Defense, Attorney General, Secretary of Agriculture, Secretary of Commerce, Secretary of Labor, Secretary of Health and Human Services, and the Secretary of Transportation.

The Chair of the FTC and Director of the Consumer Financial Protection Bureau, among others, will also be invited to participate on the Council. The broad range of members of the Council merely underscores the breadth and potential reach of the Order.

Strong Reactions from the Business Community

The breadth of the Order—affecting business and employment practices across large sectors of the economy—and the uncertainty of the types of regulations that may be imposed, have prompted strong reactions from the business community.

The potential expansion of federal antitrust law to regulate a variety of industries and employment practices without Congressional action is likely to be met with challenges in the courts. At this early stage, employers are left guessing what new regulations may be imposed, as the Order does not create any substantive or procedural rights or benefits on its face.

Advice for Employers

Employers (particularly those employers who rely on non-compete provisions) should monitor developments coming from the President's Council and FTC rulemaking authority, as the regulatory details have yet to be worked out. If the FTC does not make non-competes illegal, but rather unenforceable, not much may change moving forward. Employers interested in challenging the forthcoming regulations may want to consider working with counsel and engaging industry groups to object to proposed rulemaking to preserve arguments for future court challenges.

All employers, and particularly federal contractors, who may have fewer options to challenge regulations affecting federal procurement, may want to begin assessing their policies and practices regarding the use of non-compete agreements.

 

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