The Guidelines
During the run-up to President Trump’s inauguration, the U.S. Department of Justice and the Federal Trade Commission issued their collective “Guidelines” to explain how they will assess whether business practices violate the antitrust laws. They direct their focus to five business practices that they believe can harm the competitive process for labor:
- Agreements between companies not to recruit, solicit, or hire workers or to fix wages or terms of employment
- Agreements in the franchise context not to poach, hire, or solicit employees of the franchisor or franchisee
- Exchanging competitively sensitive information with companies that compete for workers
- Employment agreements that restrict worker’s freedom to leave their job including non-compete agreements
- Other restrictive, exclusionary, or predatory employment conditions that harm competition such as stay or pay provisions
As the DOJ and FTC point out, “This list is not exhaustive.”
Impact
The last two would have a significant impact on employers. Their assessment that non-compete and stay or pay provisions may harm competition for labor and thus violate antitrust laws provides a new avenue by federal agencies to challenge their use by private employers. As we have seen during the past few years, attacks have been made against non-competes by the National Labor Relations Board finding they can constitute unfair labor practices and the FTC which previously implemented a new rule banning them as unfair competition. The FTC’s final rule has been stayed pending legal action.
With respect to non-compete provisions, the DOJ and FTC find that non-competes that prevent workers from leaving their jobs or starting new businesses ultimately lead to a decrease of available workers in the industry. That potentially results in a loss of competition due to businesses that fail because they cannot find sufficient workers or the prevention of new businesses from forming for the same reason.
Likewise other restrictive agreements such as non-disclosure covenants similarly function to prevent workers from moving to new employment opportunities when drafted too broadly. That can occur when they prohibit disclosure of any information that is usable with the new employer. These agencies also find that non-disclosure agreements written too broadly usurp the employees’ whistleblower rights under state and federal law.
Similarly, per the DOJ and FTC, training repayment agreements, non-solicitation agreements and exit fee or liquidated damage provisions also deter employees from leaving a job for another that may present better wages and/or conditions of employment or to start a business. Again, the result is less workers available in the workplace for hire thus stomping out competition in violation of antitrust laws.
What’s Next?
Whether these Guidelines have any traction post-inauguration remains to be seen. That is true especially given President Trump’s recent termination of former General Counsel Abruzzo from the National Labor Relations Board resulting in the Board’s immediate retraction of her General Memorandum in which she had urged elimination of many non-compete and stay or play provisions as unlawful practices under the National Labor Relations Act. We expect further developments and we will keep you posted.
