[co-author: Siena Carlos*]

On July 9, 2021 President Joe Biden issued an Executive Order on Promoting Competition in the American Economy, which urges the Attorney General and Federal Trade Commission (FTC) to curb the use of non-compete and no-poach agreements.  The Executive Order aims  to foster a “fair, open, and competitive marketplace,” and calls for a “whole-of-government” approach to reverse trends of industry consolidation and anticompetitive practices. The Order indicates these trends have harmed employees’ wages, work conditions, and mobility.  It further targets what it characterizes as the “overuse” of non-compete agreements and other barriers to entry in certain markets.

Here are some of the Order’s key provisions:

• The Order encourages the FTC to curtail the use of non-compete clauses.
  • “To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory 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.” (Order, Sec. 5(g).)

• The Order emphasizes the importance of worker mobility and recognizes the hindering effect of non-compete clauses.
  • “The American promise of a broad and sustained prosperity depends on an open and competitive economy. For workers, a competitive marketplace creates more high-quality jobs and the economic freedom to switch jobs or negotiate a higher wage.” (Order, Sec. 1.)
  • “Consolidation has increased the power of corporate employers, making it harder for workers to bargain for higher wages and better work conditions. Powerful companies require workers to sign non-compete agreements that restrict their ability to change jobs.” (Id.)

• The Order calls for immediate action and affirms the Administration’s policy to enforce antitrust laws to combat harmful effects in labor markets.
  • “We must act now to reverse these dangerous trends, which constrain the growth and dynamism of our economy, impair the creation of high-quality jobs, and threaten America’s economic standing in the world.” (Id.)
  • “This order affirms that it is the policy of my Administration to enforce the antitrust laws to combat excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony – especially as these issues arise in labor markets.” (Id.)

• The Order calls for agencies to exercise regulatory authority and further implement policies to promote competition in the economy more generally.
  • “This order recognizes that a whole-of-government approach is necessary to address overconcentration, monopolization, and unfair competition in the American economy. Such an approach is supported by existing statutory mandates. Agencies can and should further the policies set forth in section 1 of this order by, among other things, adopting pro-competitive regulations and approaches to procurement and spending, and by rescinding regulations that create unnecessary barriers to entry that stifle competition.” (Order, Sec. 2(g).)

• The Order urges the Attorney General and FTC to consider revising the Antitrust Guidance for Human Resource Professionals of October 2016 “to better protect workers from wage collusion.”
  • The Guidance, which addresses wage-fixing and no-poaching agreements, warns that an individual is likely breaking antitrust laws if he or she:
    • “agrees with individual(s) at another company about employee salary or other terms of compensation, either at a specific level or within a range (so-called wage-fixing agreements), or
    • agrees with individual(s) at another company to refuse to solicit or hire that other company’s employees (so-called “no poaching agreements).” (Guidance, 3.)

Although the Executive Order does not create any immediate changes to industry use of non-compete agreements, companies should look out for possible FTC action regulating restrictive covenants in employment contracts.

*Siena Carlos is a law clerk in Sheppard Mullin’s Del Mar office.