On July 9, 2021, President Biden signed an “Government Order on Selling Pageant within the American Financial system” (EO 14036).[1] The EO units forth quite a few priorities and projects of the Biden management aimed toward protective competitors in gentle of the marketplace consolidation that has taken hang in lots of segments of the American economic system over the last a number of many years, together with in well being care markets. Particularly, the EO takes purpose at firms requiring employees to signal non-compete agreements and encourages the FTC to restrict the usage of sure non-competes. Particularly, Segment 5(g) of the EO states:
To deal with agreements that can unduly restrict employees’ skill to switch jobs, the Chair of the FTC is inspired to believe running with the remainder of the Fee to workout the FTC’s statutory rulemaking authority underneath the Federal Business Fee Act to curtail the unfair use of non-compete clauses and different clauses or agreements that can unfairly restrict employee mobility.
The EO follows Biden’s December 2020 announcement that he plans to “paintings with Congress to get rid of all non-compete agreements, except for the only a few which are completely important to give protection to a narrowly outlined class of business secrets and techniques, and outright ban all no-poaching agreements.”[2] On the other hand, the EO issued in July does now not have binding impact or require any explicit company motion with appreciate to non-competes, as a substitute handiest “encourag[ing]” the FTC to do so to curtail the unfair use of non-competes or different clauses unfairly proscribing employee mobility. Despite the fact that the EO has no fast criminal impact on the usage of non-competes, the EO’s directive to the FTC to believe an administrative rulemaking at the factor is but some other sign in a up to date development pointing to greater hobby on the federal degree to restrict the usage of non-competes within the place of work.
It’s also imaginable that the EO reveals a receptive target audience on the FTC. Over the previous couple of years, a number of FTC commissioners have made public—and important—statements on the usage of non-competes within the place of work. As an example, in January of closing yr, the FTC arranged a workshop to deal with non-compete clauses within the place of work for the specific goal of figuring out whether or not the FTC must use its rulemaking authority to control their use.[3] A bipartisan team of U.S. Senators submitted public remark according to the announcement, calling at the FTC to do so to restrict the usage of non-competes. [4] Then-acting FTC commissioner Rebecca Slaughter’s ready remarks for the workshop at once addressed the affect of non-competes on doctor practices, elevating the query of whether or not implementing non-competes on physicians by means of an employer health facility approach the health facility’s “trade hobby is being promoted on the expense of sufferers.” [5] Previous to the FTC’s non-compete workshop, Rohit Chopra and Lina Khan, FTC commissioner and now-current FTC chair, respectively, introduced a essential view of non-compete clauses in a 2019 regulation evaluate article, implying that non-compete clauses in employment contracts could also be “ripe for rulemaking.” [6] In spite of those publicly expressed perspectives, no definitive motion is formally into consideration by means of the FTC to limit the usage of non-competes presently.
Moreover, there were a number of fresh makes an attempt to restrict the usage of non-competes within the place of work via federal regulation. As an example, the U.S. Senate is lately taking into account the Team of workers Mobility Act of 2021 (WMA), S. 483, [7] following earlier variations of the invoice offered in 2018 and 2019.[8] The WMA is a bipartisan-sponsored Senate invoice which might significantly prohibit the usage of non-competes normally, position enforcement accountability with the FTC and Division of Hard work (together with possible civil fines as much as $5,000 a week for a reported violation), and supply for a personal explanation for motion.[9] Segment 3 of the WMA extensively prohibits someone from coming into into, imposing, or threatening to implement a non-compete settlement “with anyone who plays paintings for the individual and who in any workweek is engaged in trade or within the manufacturing of products for trade (or is hired in an undertaking engaged in trade or within the manufacturing of products for trade),” topic to a number of exceptions. Exceptions are restricted to sure non-competes agreed to as a part of the sale of goodwill of a trade, sale of possession hobby in a trade, or partnership dissolution or disassociation. Moreover, Segment 4 of the WMA explicitly carves out agreements between employers and folks to ban the sharing of the employer’s “business secrets and techniques,” as outlined at 18 U.S.C. § 1839, both right through or after employment. A similar invoice by means of the similar identify used to be additionally offered previous this yr within the U.S. Space of Representatives with bipartisan cosponsors as H.R. 1367. [10] For the reason that the WMA used to be prior to now circulated in Congress in prior years—and the loss of motion for the reason that WMA’s re-introduction in February—it’s unclear whether or not the present iteration of the WMA has a considerable probability of passage.
On the other hand, given previous public statements by means of FTC commissioners essential of non-compete clauses in employment agreements, new power from the Biden management, and the opportunity of Congressional motion, there’s no less than some chance within the coming years of federal motion to restrict the usage of non-competes within the place of work.
Kevin Kifer is an affiliate in Thompson Coburn’s Well being Regulation Observe Crew.
[1] https://www.whitehouse.gov/briefing-room/presidential-actions/2021/07/09/executive-order-on-promoting-competition-in-the-american-economy/
[2] https://joebiden.com/empowerworkers/
[3] https://perma.cc/8ERZ-7HNZ.
[4] https://www.murphy.senate.gov/imo/media/document/FTCp.c20non-competesp.c20letterp.c201.8.2020.pdf
[5] Rebecca Slaughter, Remarks on the FTC Workshop on Non-Compete Clauses within the Place of business, “New Decade, New Get to the bottom of to Give protection to and Advertise Aggressive Markets for Employees” (Jan. 9, 2020), https://www.ftc.gov/device/recordsdata/paperwork/public_statements/1561475/slaughter_-_noncompete_clauses_workshop_remarks_1-9-20.pdf
[6] Rohit Chopra & Lina M. Khan, The Case for “Unfair Strategies of Pageant” Rulemaking, 87 U. Chi. L. Rev. 357, 373 (2020), https://www.ftc.gov/device/recordsdata/paperwork/public_statements/1568663/rohit_chopra_and_lina_m_khan_the_case_for_unfair_methods_of_competition_rulemaking.pdf
[7] https://www.congress.gov/117/expenses/s483/BILLS-117s483is.pdf
[8] https://www.congress.gov/115/expenses/s2782/BILLS-115s2782is.pdf; https://www.congress.gov/116/expenses/s2614/BILLS-116s2614is.pdf
[9] https://www.murphy.senate.gov/newsroom/press-releases/murphy-young-reintroduce-bill-to-protect-american-workers-limit-non-compete-agreements; https://www.congress.gov/117/expenses/s483/BILLS-117s483is.pdf
[10] https://www.congress.gov/117/expenses/hr1367/BILLS-117hr1367ih.pdf
