As we have written about previously, an increasing number of states, and Washington, D.C., have limited the circumstances under which employers can bind their employees to non-compete and similar agreements, particularly when low-wage workers (however defined) are involved. The courts, however, are not immune to the trend, as evidenced by the April 21, 2022 decision from the U.S. Third Circuit Court of Appeals, ADP, Inc. v. Levin. In that case, the Third Circuit affirmed a district court’s denial of a preliminary injunction against a senior executive who had resigned from his Chief Strategy Officer position at his prior employer, ADP, to take over the Chief Executive Officer position at rival Benefitfocus.
Non-compete agreements between employers and their employees traditionally are governed by state law. But that did not stop the Antitrust Division of the Department of Justice (DOJ) from recently filing a statement of interest encouraging a Nevada state court to consider federal antitrust principles to invalidate non-compete agreements between a large medical group and its physician-employees. Taken together with other recent actions by the president and federal enforcement agencies, the DOJ’s decision to file this statement signals a more aggressive approach to non-compete enforcement at the federal level.
On February 10, 2022, the National Labor Relation Board’s (NLRB) General Counsel, Jennifer Abruzzo, issued Memorandum GC 22-03 announcing her agreement with and support of the Biden administration’s Task Force on Worker Organizing and Empowerment (Task Force) February 7, 2022 report. The Task Force was created by executive order in April 2021 to identify ways the executive branch can promote worker organization and collective bargaining through existing policies and programs. The Task Force’s report included recommendations to increase organizing and encourages collaboration between government agencies focused on worker protection. In addition to instructing field offices to adopt the recommendations outlined in the report, Abruzzo’s memorandum details current interagency undertakings and outlines future efforts to strengthen those collaborations.
The top 10 non-compete law developments in 2021 demonstrated a continued hostility by lawmakers and courts toward noncompetition and no-hire agreements, as well as the need for employers to stay current on the diverse state-specific limitations governing restrictive covenants, new federal activity in the area and ongoing case law developments. In light of these trends, national employers would do well to (1) be selective in identifying those categories of employees required to sign such agreements, (2) rely on allowable choice-of-law and venue provisions to maximize the chances of enforceability, (3) keep a keen eye on likely federal developments in the year ahead and (4) avoid no-poach agreements with employers as a poor substitute for narrowly tailored employee non-compete agreements.
As part of “a whole-of-government effort to promote competition in the American economy,” President Biden’s July 9 Executive Order on Promoting Competition in the American Economy encourages the Federal Trade Commission to ban or limit non-compete agreements. In doing so, President Biden continues — and potentially accelerates — what to date has been a piecemeal effort conducted almost exclusively at the state level to limit, and in some cases prohibit, the use of non-competes, particularly for low-wage workers.
On October 20, 2016, the United States Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) issued “Antitrust Guidance for Human Resource Professionals” regarding antitrust prohibitions of agreements that restrain competition for employees’ services. (Click the following links for a copy of this guidance, and the accompanying press release.) The guidance addresses business-to-business agreements regarding employee non-hiring and recruitment, and is intended to both remind HR professionals that these agencies have challenged such types of understandings over the past several years, and warn employers that the DOJ, in particular, intends to begin prosecuting at least some employers criminally in the months and years ahead.
The overall message is that employees are entitled to all of the benefits of competition for their services and that the FTC and DOJ are now increasing scrutiny of all practices that may impede those benefits. Some examples are formal or informal “wage-fixing,” “anti-poaching” and exchanges of compensation information generally. Over the course of the past several years, both agencies have challenged some of these practices in a variety of industries, particularly within the high-tech and healthcare sectors, as “per se” antitrust violations. These government actions have been followed by private class actions seeking treble damages, which in some cases, have resulted in judgments for hundreds of millions of dollars. As noted above, the DOJ now intends to treat at least some of these practices as felony criminal violations of the antitrust laws.