US antitrust agencies step up enforcement with proposed policy changes that create uncertainty and new regulatory burdens

Under the Biden administration, the US antitrust agencies—the Federal Trade Commission (FTC) and Department of Justice, Antitrust Division (DOJ)—have proposed widespread changes to antitrust policy, creating uncertainty for companies doing business in the US. Two examples in particular point to the agencies' radical departure from decades of precedent: the FTC's proposed total ban on non-compete clauses and both agencies' proposed sweeping changes to the Hart-Scott-Rodino (HSR) Form and Instructions. Both moves would require businesses to plan and make significant adjustments to how they comply.

Proposed FTC rule banning non-competes

In January 2023, the FTC proposed a rule prohibiting employers from including non-compete clauses in employee contracts, based on a preliminary finding that non-compete clauses violate Section 5 of the FTC Act and constitute an unfair method of competition.

The proposed rule is broad in scope and would prohibit an employer from entering or attempting to enter into a non-compete clause with a worker; maintaining a non-compete clause with a worker; or representing to a worker that they are subject to a non-compete clause. The rule would apply to independent contractors and both paid and unpaid employees. Further, the rule would apply retroactively, meaning employers would be required to rescind pre-existing non-compete clauses, and it would apply functionally, meaning any employment terms that perform as non-compete agreements—for instance broad non-disclosure agreements—would not be permitted.

The proposed rule includes certain exemptions, namely those entities that are exempted from coverage under the FTC Act. This includes certain banks, savings and loan institutions, federal credit unions, common carriers, air carriers and foreign carriers, persons subject to the Packers and Stockyards Act of 1921, and non-profit organizations. Further, in the context of mergers and acquisitions, the FTC recognizes that non-compete clauses may be necessary to protect the value of a business where the seller has a large stake in the business. Accordingly, a non-compete clause would be exempt where the seller of a business is subject to the clause and is a "substantial" owner, member or partner in the business entity.

Importantly, the FTC acknowledged three main ways in which the proposed rule could differentiate among employees—based on job functions, earnings, or whether the worker subject to the clause is a senior executive. Ultimately, however, the FTC concluded that the proposed rule would apply uniformly to all workers.

The public comment period closed in April, with more than 21,000 comments submitted. Although it is not clear whether the FTC will revise the proposed rule to accommodate criticisms, a number of comments noted the lack of an intellectual property-related exemption, and the consequent potential adverse impact on IP protection, and expressed concern over the lack of distinction between low- and higher-wage employees.

Proposed changes to the HSR Form

In June 2023, the FTC, together with the Antitrust Division of the DOJ, proposed rules to amend the HSR Form and Instructions. The proposed changes would be the most significant changes to the form in 45 years and would increase the time and burden required to prepare HSR filings.

The new HSR Form would require the merging parties to submit narrative responses discussing horizontal overlaps as well as non-horizonal relationships, such as supply relationships, in response to a new "competition analysis" section. This section would also require the parties to identify and provide contact information for top customers, explain the rationale behind the transaction and disclose the timeline for the deal.

Notable among a number of proposed changes is the requirement that parties submit English-language translations for all foreign-language documents required as part of the HSR filing. Currently, parties must submit English-language translations only where they already exist in the ordinary course of business. Further, the proposed rules would require that parties disclose all jurisdictions where merger control filings will be made, superseding what is currently a voluntary practice.

Key takeaways for Taiwanese businesses

In the case of a potential ban on non-compete clauses, Taiwanese employers should consider entering into confidentiality or non-disclosure agreements with workers to protect confidential business information or client relationships. In doing so, employers should ensure that NDAs are drafted sufficiently narrowly, so they do not appear to function as non-compete clauses in practice.

Employers should also consider offering comprehensive trainings to employees on maintaining the confidentiality of business information and on the proprietary right a business has to its information.

As for the HSR Form, the proposed changes would significantly increase the amount of information required for disclosure as part of the filing. Parties should take into account the additional time and cost needed to prepare this information and begin collecting documents and preparing an HSR filing several months ahead of the deadline.

When negotiating deal documents, parties should consider agreeing to longer timelines for completing an HSR filing following the execution of a transaction agreement, for example using broad language such as "as promptly as practicable."

Parties should begin evaluating antitrust risks and competitive overlaps during the early stages of planning and consider preparing an HSR filing at an earlier stage of the process.

Conclusion

Companies now face a significant amount of uncertainty in conduct and merger-related antitrust enforcement in the US, due to the Biden administration's proposed rules. Taiwanese companies doing business in the US should monitor the situation and plan early in order to comply with the substantial new requirements of the proposed rules, as the new HSR Form could become effective as early as Q1 2024 and the non-compete ban in late 2024.

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