We focus on several areas of particular interest that we have been closely monitoring: heightened antitrust scrutiny in labor markets, defense, and railroad freight services.
A Rallying Cry to the “Whole-of-Government”
The EO seeks to harness the coordinated power of the full federal government, emphasizing “that a whole-of-government approach is necessary to address” competition concerns in the U.S. economy.2 To that end, the Order establishes a White House Competition Council, to be led by the Director of the National Economic Council (“NEC”).3 An integral part of the Office of White House Policy, the general bailiwick of the NEC is to advise the president on economic policy matters. By embedding the new council within the White House, President Biden is sending the strong message that competition is a focus area over which he intends to keep close tabs and invest his personal political capital.
The White House Competition Council’s stated overarching mission is to “coordinate, promote, and advance Federal Government efforts to address overconcentration, monopolization, and unfair competition in or directly affecting the American economy.”4 In particular, the White House Competition Council is charged with monitoring progress on the initiatives set forth in the EO and coordinating the federal government’s multi-pronged response to the competition concerns articulated in the Order. Helming the new White House Competition Council is Brian Deese, who serves as the Director of NEC, as well as the Assistant to the President for Economic Policy. A veteran of the Obama administration and Yale-educated lawyer, Mr. Deese served in a variety of economic policy roles under President Obama — including a stint as the deputy director of the important and influential Office of Management and Budget — and played a leading role in the administration’s rescue strategy regarding the auto industry in the wake of the 2008 financial crisis.
The EO also delineates the membership of the White House Competition Council – mandating that the Secretaries of Treasury, Defense, Agriculture, Commerce, Labor, Health and Human Services, and Transportation, as well as the Attorney General and the Administrator of the Office of Information and Regulatory Affairs, shall be members and shall each designate a senior official within their agencies to be responsible for overseeing the agency’s efforts to implement the EO and coordinate with the White House Competition Council.5 This broad contingent of very senior members of the Biden administration further underscores the EO’s “whole-of-government” approach.
Analyzing the Agency-Specific Marching Orders Pertaining to Labor, Defense and Procurement, and Rail
The EO encourages federal agencies to not only work together, but individually assess the ways in which they can each “influence the conditions of competition through their exercise of regulatory authority or through the procurement process.”6 At a high level, the EO encourages the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) to enforce the antitrust laws “fairly and vigorously.”7 In addition, a variety of agencies, from the Department of Labor to the Surface Transportation Board to the Department of Defense, among others, are given specific and direct marching orders to address competition concerns unique to the industries they regulate.
Administration Doubles Down on Labor Markets
Protecting the American worker is among the EO’s flagship concerns. The opening sections of the Order repeatedly mention competitive fairness in labor markets as a top priority. For example, Section 1 laments that “[p]owerful companies require workers to sign non-compete agreements that restrict their ability to change jobs” and the Order repeatedly calls out “excessive concentration” and “abuses of market power” as harms to competition in labor markets. The White House-issued Fact Sheet that accompanied the Executive Order is even more blunt, zeroing in on non-compete clauses as “[o]ne way companies stifle competition” and estimating that nearly half of private-sector businesses impose non-compete agreements on their employees, thus affecting as many as 60 million American workers.8
More directly, the Order specifically encourages the DOJ Antitrust Division and FTC to consider revising the Antitrust Guidance for Human Resource Professionals, which was jointly issued by the two agencies in October 2016 (“2016 HR Antitrust Guidance”).9 Since the 2016 issuance, DOJ’s Antitrust Division in particular has heralded the 2016 HR Antitrust Guidance as ushering in a new approach to combating so-called “no poach” and wage-fixing agreements. Prior to October 2016, agreements between competing employers not to recruit or hire away one another’s employees were subject to civil antitrust enforcement actions. The 2016 HR Antitrust Guidance stated that, going forward, such conduct would be considered a per se criminal violation of Section 1 of the Sherman Act, which prohibits agreements, combinations, and conspiracies that unreasonably restrain trade. In the past six months alone, there has been a proliferation of criminal antitrust investigations and indictments targeting alleged no-poach and wage-fixing agreements. Active investigations are publicly underway in the healthcare, technology, food and beverage, online marketing, and financial services sectors.
Treasury also has a role to play in this effort. The EO instructs the Secretary of the Treasury to coordinate with several other agencies and offices to submit, within 180 days, a report to the White House Competition Council on the “effects of lack of competition on labor markets.”10 The EO further prods the FTC to exercise its 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.”11 Common in many commercial and employment agreements, non-compete clauses prohibit departing employees from immediately taking new positions that would require them to compete with their former employer. Pursuant to current FTC and DOJ guidance and precedent, including the 2016 HR Antitrust Guidance, such clauses are not considered unlawful, and indeed are often viewed as valid, if they are ancillary to a legitimate business agreement and reasonably tailored to the particular circumstances.
For months, our team has been training companies, executives, and industry associations about the risks associated with overly broad non-compete and non-solicitation provisions in business collaborations, employment agreements, and other commercial agreements. These clauses — known as restrictive covenants — are increasingly disfavored at the state, and now, at the federal level. Earlier this year, the District of Columbia banned non-compete agreements that would restrict any D.C. employee from taking a job with a competing employer, except in the limited circumstance of the sale of a business.12 And in May 2021, the Pennsylvania Supreme Court struck down as unreasonably broad the non-solicitation provision in a services contract between two private businesses. These are but two examples of the restrictive covenants — even those embedded in ordinary commercial and employment agreements — being in the crosshairs. Now the Biden administration is putting its weighty thumb on the scale against such agreements as well.
We will continue to monitor the administration’s heightened scrutiny of competition in labor markets and are particularly interested to see how the DOJ Antitrust Division and FTC respond to the EO’s “encouragement” to re-evaluate the 2016 HR Antitrust Guidance. Notably, despite the Biden administration making competition a top priority, a nominee to lead the DOJ’s Antitrust Division has yet to be named, marking the longest run in modern history without a nomination for this key role.
Defense and Procurement Remain in the Crosshairs
Another key focus of the Order is on the power of procurements. The EO proclaims that “[a]gencies can influence the conditions of competition through their exercise of regulatory authority or through the procurement process” and encourages agencies to adopt “pro-competitive regulations and approaches to procurement and spending.”13 The administration clearly believes, and correctly grasps, that federal spending is a powerful incentive, noting that the potential for agency “procurement or other spending” may be wielded to “improve the competitiveness of small businesses and businesses with fair labor practices.”14
Defense is among the most significant areas of federal government procurement and spending. The EO tasks the Secretary of Defense with submitting, within 180 days, a report on the state of competition “within the defense industrial base, including areas where a lack of competition may be of concern.” The report must also provide recommendations for improving the Defense Department’s solicitation process.15 Consolidation in the defense industry has long been a concern of antitrust enforcers, particularly in Democratic administrations. Permeating the Order is the overarching goal of empowering agencies to “resist[] consolidation and promot[e] competition . . . through the independent oversight of mergers, acquisitions, and joint ventures” and to “promulgat[e] rules that promote competition” and facilitate the entry of new market participants.16
The EO’s emphasis on procurements aligns with the DOJ Antitrust Division’s increased antitrust enforcement activity in government contracting and public procurement. As we have reported, in late 2019, the Antitrust Division stood up the Procurement Collusion Strike Force (the “Strike Force”) to combat illegal collusion in the bidding process for federal contract dollars. The Department of Defense was a founding investigative partner in the Strike Force. In the past 18 months, the Strike Force’s footprint and prowess have quickly grown and elite investigative units from the Air Force and other branches of the U.S. military are among the Strike Force’s more prominent partners.
While the EO does not mention the Strike Force specifically, it makes very clear that the administration’s focus on improving competitive conditions surrounding procurements is significant and government-wide. On the heels of the Strike Force’s first resolution and indictment for collusion outside the U.S., we expect additional investigations and prosecutions to soon come to light. The Strike Force has publicly stated that it has opened more than two dozen grand jury investigations into possible procurement collusion impacting federal spending on projects big, small, foreign, and domestic. In conjunction with our Government Contracts team, we routinely train and advise companies that do business with the government regarding competition concerns in the procurement and bidding process.
Promoting Competition in the Rail Industry
The Order also articulates concern regarding decreased competition in the rail industry. The Fact Sheet laments that the transportation section, including rail, is “dominated by large corporations” and that “four major rail companies now dominate their respective geographic regions.”17 Indeed, “[i]n 1980, there were 33 ‘Class I’ freight railroads, compared to just seven today.”18
Long-standing multi-district litigation currently pending in federal court in DC aligns squarely with this concern. More than 300 companies that shipped finished products, raw materials, and other goods over the rail lines have sued the nation’s four largest class I railroads, alleging the collusive imposition of a fuel surcharge by all four carriers. Full disclosure: our team represents nearly a dozen large shippers pursuing claims against the railroads in the litigation. The fact and consequences of increased consolidation in the rail industry over the past few decades has been a recurring theme in the litigation. Indeed, the district court recently addressed an issue of first judicial impression regarding application of a statute governing the admissibility of certain evidence to establish conspiratorial conduct and invited the views of the DOJ, FTC, Surface Transportation Board (“STB”), and Department of Transportation.
The issuance of the EO comes just as the STB is set to evaluate the appropriateness of a merger between U.S.-based Kansas City Southern railway and Canadian National Railway.19 Notably, and perhaps not coincidentally, the EO directs the STB, which is responsible for regulating the rail industry, to engage in rulemaking aimed at strengthening the competitiveness of rail service and to assess proposed consolidation in the rail industry to ensure consistency with public interest.
More Action to Come
President Biden’s EO appears to be just the beginning. It lays out the administration’s clear objective to promote competition broadly in the U.S. market, across a diverse set of industries and markets. In the coming months, we expect to see the agencies and offices addressed in the Order to begin implementing their specific marching orders. With Lina Kahn as the its new Chairperson, the FTC is already moving forward with an aggressive agenda, not just in technology, but across all sectors. As the next steps by the FTC, DOJ, and Labor, Treasury, and Defense Departments unfold, our team will continue to provide updates, analysis, and recommendations in response to new competition developments.
1 Exec. Order No. 14,036 (Promoting Competition in the American Economy), 86 Fed. Reg. 36,987 (July 9, 2021), https://www.govinfo.gov/content/pkg/FR-2021-07-14/pdf/2021-15069.pdf [hereinafter “EO”]; see also Fact Sheet: Executive Order on Promoting Competition in the American Economy, The White House Briefing Room (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/ [hereinafter “Fact Sheet”] at 2 (noting that the Order “includes 72 initiatives by more than a dozen federal agencies to promptly tackle some of the most pressing competition problems across our economy”).
2 EO at Section 2(g).
3 Id. at Section 4(a).
4 Id. at Section 4(b).
5 Id. at Section 4(f), (h).
6 Id. at Section 2(f).
7 Id. at Section 5(b).
8 Fact Sheet at 1 (estimating that “industry consolidation is decreasing advertised wages by as much as 17%” and that “[t]ens of millions of Americans … are required to sign non-compete agreements as a condition of getting a job,” making it more difficult to switch to “better-paying options”).
9 EO at Section 5(f).; see also Fact Sheet at 4 (opinion that workers may be “harmed” by the 2016 HR Antitrust Guidance in part because it allows third parties to make wage data available to employers and not employees).
10 EO at Section 5(v)(i).
11 Id. at Section 5(g).
12 See also “Nation’s Capital Moves to Ban Non-Competes,” V&E Insight (Jan. 20, 2021), https://www.velaw.com/insights/nations-capital-moves-to-ban-non-competes/.
13 EO at Section 2(f), (g).
14 Id. at Section 5(a)(ii); see also Fact Sheet at 3.
15 Id. at Section 5(s)(ii).
16 Id. at Section 2(d)(ii), (iii).
17 Fact Sheet at 6-7.
18 Id.
19 Jacquie McNish, Canadian National to Sell Rail Asset to Defuse Kansas City Southern Antitrust Concerns, Wall St. J., May 26, 2021, available at https://www.wsj.com/articles/canadian-national-to-sell-rail-line-section-to-defuse-kansas-city-southern-antitrust-concerns-11622028411.
