The DOJ and FTC Issue Joint Statement on Competition in Labor Markets in Light of COVID-19: What Effect, If Any, Does This Have on Non-Competes?

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On April 13, 2020, the Department of Justice’s Antitrust Division and the Federal Trade Commission’s Bureau of Competition released a joint statement and press release regarding “competition in labor markets” and potential agency actions in the face of the COVID-19 crisis. While the agencies’ joint statement appears to be focused on collusion between employers entering into horizontal “no-hire” or “no-poach” agreements, employers in certain industries affected by the crisis should also exercise reasonable care in enforcing vertical restrictive covenants, including non-competition and non-solicitation agreements.

The DOJ’s enforcement of antitrust laws in the context of no-hire agreements between employers is, in and of itself, nothing new. Ever since the high-tech employee antitrust action against some of the nation’s largest tech firms in 2010, the DOJ has taken a more aggressive stance toward policing alleged collusion between employers to fix wages or not hire one another’s employees absent some legitimate justification (such as  two employers working jointly on a project involving the sharing of confidential information or a settlement in litigation of a raiding or non-solicitation claim). In October of 2016, the DOJ’s Antitrust Division announced that it intended to begin filing criminal actions against employers who entered into no-poach and wage-fixing agreements that are “naked”: per the DOJ’s description, agreements that are “unrelated or unnecessary to a larger legitimate collaboration between the employers.” And in January of 2018, the Antitrust Division re-affirmed that it intended to pursue criminal actions against employers using such agreements even if the agreements were entered into prior to 2016. While the DOJ has apparently yet to actually file any such criminal charges, DOJ attorneys informed Congress just last October that there are a number of active criminal investigations underway.

Against this backdrop, the agencies’ recently issued joint statement seems to mostly reiterate what the DOJ had already identified as an enforcement priority, while reminding employers in certain industries—specifically, those who employ medical providers, first responders, and other essential service providers—that they may be subject to enhanced scrutiny. The statement also makes clear that beyond actual collusion between employers vis-à-vis no-poach and wage-fixing agreements, the FTC may file civil enforcement actions “against companies and individuals that invite others to collude.” Of course, in practice, it is unclear whether companies joining forces during the pandemic will be deemed to have “colluded” so much as collaborated, and query whether the government will take draconian measures against companies who, in an effort to swiftly join the fight against COVID-19, resort to off-the-shelf or form no-hire/no-poach agreements, without some evidence of a knowing attempt to stifle competition in the labor market.

Even absent alleged collusion between employers in the form of naked no-poach and no-hire agreements, however, some may attempt to interpret the agencies’ recent joint statement as questioning the enforceability of non-competition agreements against employees in the fields mentioned above. Specifically, the joint statement cautions that the DOJ and FTC “may also use their civil enforcement authority to challenge unilateral anticompetitive conduct by employers that harms competition in a labor market,” and includes “anticompetitive non-compete agreements” in the list of unlawful agreements against which the agencies may act.

If applied to non-competes generally, this would be simply the latest in a line of pronouncements from the federal government painting such restrictive covenants in a negative light, beginning with a White House policy statement in 2016. Particularly considering the involvement of the FTC—which just recently held a panel questioning the alleged abuse of non-competes, and raising its own ability to police them—there is an understandable temptation to view the recent joint statement as a new position on federal authority to restrict the use of non-compete agreements.

While the statement provides little guidance on what sort of “unilateral anticompetitive conduct” might be subject to challenge, upon closer examination the statement does not announce any changes to the general enforceability of restrictive covenants. The “anticompetitive non-compete agreements” mentioned in the statement, i.e. non-compete agreements not justified by any legitimate business purpose of the employer but purely intended to prevent ordinary competition, are already generally unenforceable in every state. The only arguable additional risk for employers with purely “anticompetitive non-compete agreements” is that, beyond their agreements being unenforceable, they may also face agency action as well if they attempt to enforce such agreements. The agencies’ statement does not suggest that narrowly-tailored non-compete agreements (or other restrictive covenants) that protect an employer’s legitimate business interests in, for example, protecting confidential information and/or trade secrets, work force, long-term customer relationships, or preserving goodwill with customers, are necessarily unenforceable or subject to heightened scrutiny. Thus, contrary to what those who are hostile to enforcement of non-competes may say, the joint statement does not seem to signal much of a change, if any, in the DOJ’s or FTC’s strategy going forward as it relates to vertical covenants between a single employer and an individual employee.  In fact, given the FTC’s recent panel raising the question of whether it even has the rulemaking authority to police restrictive covenants[1] (and if it does, whether it should exercise that authority to limit enforcement), it hardly seems likely that the FTC would have conclusively resolved the question of its authority to limit such agreements through the use of a mere 1.5 page joint statement that seems to make no groundbreaking pronouncement beyond its previously publicized positions.

Takeaway

As always, all employers should continue to bear in mind the DOJ’s position toward no-poach and no-hire agreements and make sure that any such agreements are justified by legitimate business interests between collaborating employers. Organizations that employ individuals on the “front line” of combatting the COVID-19 crisis should be particularly cautious about rolling out and seeking to enforce such agreements—while the agencies’ statement mentions medical workers, emergency responders, and grocery store and pharmacy workers, those should be read as examples and not an exhaustive list. In the context of non-compete agreements or other restrictive covenants between employers and their employees, all organizations, and particularly those in the aforementioned industries, should make sure that any such agreements are reasonable in scope and clearly and unmistakably justified by the protection of legitimate business concerns before considering any action to enforce such agreements. The statement does not, however, announce any changes regarding the general enforceability of restrictive covenants that protect an employer’s legitimate business interest, even for employees in the aforementioned fields.

 

[1] In its April 24, 2020 comments to the FTC, the Antitrust Law Section of the ABA expressed its skepticism of “the Commission’s authority under Section 6(g) of the Federal Trade Commission Act to promulgate antitrust rules—in this case, one banning or limiting the use of non-compete clauses in employment agreements as an unfair method of competition.” The Section further expressed doubt as to the FTC’s ability to crack down on such agreements as unfair or deceptive acts or practices through hybrid rulemaking, and urged the FTC that “the question of non-compete clauses is likely to be ill-suited” to rulemaking.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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