The Federal Trade Commission (FTC) and the Department of Justice (DOJ) hosted a virtual workshop on December 6-7, 2021, bringing together agency representatives, lawyers, economists, academics, and other experts to discuss issues affecting competition in the labor market (“Workshop”).
We attended the Workshop virtually and co-signed a response letter (drafted by our friends Russell Beck and Erika Hahn at Beck Reed Riden LLP). We provide our perspective on the Workshop and the key points of the response letter below.
How We Got Here
The Workshop is the latest step in the federal government’s increasing interest in potentially regulating contracts between employers and employees (an area typically governed by state common law) under the auspices of promoting competition in the labor market.
Going back to October 2016, President Barack Obama issued a “State Call to Action on Non-Compete Agreements” to “address wage collusion, unnecessary non-compete agreements, and other anticompetitive practices.” Several states have since taken up the “Call to Action” and passed laws regulating non-competes and other restrictive covenants, imposing various rules like minimum salary requirements, advance notice requirements, and temporal or geographic scope restrictions. Perhaps predictably, since they are the “laboratories of democracy,” no two states legislated in the same exact way.
In Congress, multiple bills have been proposed that would ban non-competes outright, but they have not yet garnered wide support in either party.
The FTC already hosted one workshop in January 2020 “to examine whether there is a sufficient legal basis and empirical economic support” to restrict non-competes. As we noted then, there was significant debate about whether the FTC could, legally, regulate this area of law.
Then, this summer, President Joe Biden issued a wide-ranging Executive Order that, among many other competition-focused objectives, encouraged the FTC to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
This is the context in which the FTC and DOJ hosted the Workshop, which included a broad range of topics and perspectives—from worker misclassification to the potential effects of mergers and acquisitions on wages.
Takeaways from the Workshop
The Workshop was heavy on theory and light on concrete proposals. The presenters offered fascinating perspectives that often clashed in fundamental ways. We perceived these themes from the discussion:
- The FTC and DOJ appear poised to use current antitrust law to attack alleged “monopsonistic” practices.
Several commenters suggested current antitrust laws (such as the Sherman Antitrust Act) apply with equal weight to so-called “buyer side” anticompetitive practices—situations in which employers are “buying” labor rather than “selling” products. On the “seller side,” a company might violate antitrust laws if it behaves as a “monopoly” (the lone seller of a product in a market) and unfairly manipulates consumer prices. Whereas in the “buyer side,” a company might be a “monopsony” (the lone employer, or labor buyer, in a market) and unfairly manipulate wages. There was significant debate about whether, and to what extent, current antitrust laws might apply to alleged “monopsonistic” practices.
- A potentially wide range of current practices could be considered “monopsonistic.”
When discussing what might constitute an unlawful “monopsonistic” practice, Workshop participants highlighted several issues: consolidation of labor markets through mergers; use of non-compete agreements; use of non-disclosure agreements prohibiting employees from discussing wages or alleged unlawful employer conduct[1]; use of training repayment agreements that force workers to stay in their jobs or face a steep financial penalty; and worker misclassification, either through franchises or independent contractor relationships.
Several of these issues already garner scrutiny under other laws, like the National Labor Relations Act and Fair Labor Standards Act. But the question discussed in the Workshop was whether these practices might be punishable as antitrust violations, potentially carrying severe civil and criminal penalties.
- The discussion on non-competes conflicted with our experience as practitioners.
Several participants in the Workshop raised alarm bells about the use of non-competes with low-wage workers who seldom have access to trade secrets or confidential information. Some then suggested that because non-competes are sometimes used inappropriately, the federal government should ban all non-competes.
But as we noted in the letter we co-signed in response to President Biden’s Executive Order, such occasional abuse of non-competes does not warrant a complete ban. Even in states that do not currently ban non-competes with low-wage workers, courts have hundreds of years’ experience ferreting out situations like those described with concern in the Workshop, where a non-compete would most likely be held unenforceable under existing common law if it is not narrowly tailored to protect a legitimate business interest.
Employers seeking to enforce unlawful contracts also may expose themselves to civil penalties (in some jurisdictions), common law tortious interference claims, liability for the employee’s attorneys’ fees, or other potential claims. It is inaccurate to suggest that, without federal intervention, employers face no consequences for attempting to enforce unlawful non-competes.
That being said, we recognize that the overwhelming majority of non-competes that are signed are never litigated. Even if there is validity to the concern that some employees do not seek certain competitive employment because they believe they are contractually restricted from doing so (although the contract at issue may be of questionable enforceability), we do not think this concern justifies federal overhaul of restrictive covenant law.
Our Response Letter
The FTC and DOJ accepted comments from the public on the issues addressed in the Workshop through December 20, 2021, and we jointly submitted a letter co-signed by 70 leading lawyers and paralegals around the country who practice in restrictive covenant law. Our submission cited new research that casts doubt on some of the prior research in this area.
In one example, researchers noted that companies often “bundle” restrictive covenants together into a single contract (this matches our experience), thus calling into question the results of prior studies focusing just on non-competes, which could be “misleading.” Further, although not materially addressed in the Workshop, we are experiencing one of the greatest periods of employee mobility in recent memory in the “Great Resignation.” This seems to run counter to the idea that non-competes stop workers from leaving their employers. Finally, we noted that non-competes have been used around the country throughout the entire arc of the nation’s rise to economic power. Imposing a fundamental change in how companies protect themselves from unfair competition could have drastic, unforeseen consequences.
Conclusion
The Workshop did not reveal whether the federal government will regulate non-competes or restrictive covenants. Encouraging a robust, competitive labor market is clearly a priority for the Biden Administration, the FTC, and the DOJ. It is not clear that use of non-competes or other restrictive covenants has any impact, positive or negative, on the competitiveness of the labor market as a whole.
We will continue to monitor these issues as they progress. In the meantime, employers should consider discussing with counsel alternative ways to protect their interests in the event the federal government takes a hard stance on non-competes.
[1] Note that these types of provisions are distinguishable from non-disclosure agreements preventing employees from using or disclosing an employer’s trade secrets or confidential business information. The Workshop participants did not seem to believe these types of contracts trigger the same concerns.
