President Biden’s Executive Order Encourages Agency Action to Promote Competition and Worker Mobility and Curtail the Use of Non-Compete Agreements
President Biden recently issued an Executive Order that advances a campaign promise to, among other things, eliminate non-competition agreements. But first, agencies must weigh in and adopt rules to promote the administration’s policies. The Executive Order does not, by itself, outlaw restrictive covenants or other employment practices.
The Biden | Harris campaign promised to work with Congress “to eliminate all non-compete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets, and outright ban all no-poaching agreements.” Last week’s Executive Order took the first concrete step towards the goal of reducing non-competition agreements in the labor market.
The Executive Order targets industry consolidation and perceived barriers to higher wages, better working conditions, and employee mobility. The Executive Order, however, is not limited to the labor market. It spotlights agriculture, information technology, prescription drugs, healthcare services, and telecommunications markets as well.
President Biden’s Executive Order is more detailed than an Executive Order President Obama issued in 2016 that generally instructed agencies to identify actions to take to address “undue burdens on competition.” This Executive Order broadly promotes agencies to adopt pro-competitive regulations and “rescind […] regulations that create unnecessary barriers to entry that stifle competition.”
Specifically, the Executive Order encourages the Chair of the Federal Trade Commission (“FTC”) to exercise the FTC’s rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” The Federal Trade Commission Act declares as unlawful unfair methods of competition, which are those that cause or are likely to cause substantial injury to consumers that are not reasonably avoidable by consumers themselves and which are not outweighed by countervailing benefits to consumers or competition.
The Texas Free Enterprise and Antitrust Act of 1983 is designed to promote economic competition in Texas by outlawing restraints of trade or commerce. The Act is to be construed in harmony with comparable federal antitrust statutes if they are consistent with the Act’s purpose. Yet, Texas law permits certain non-compete agreements whose restrictions are reasonable as to time, geographical area, and scope of activity to be restrained.
The Executive Order does not detail how the Administration wishes for the FTC identify unfair use of non-compete clauses or provisions that unfairly restrain employee mobility. Likewise, the Executive Order does not delimit those absolutely necessary non-compete agreements or the trade secrets that the Administration deems worthy of protection.
President Biden’s Executive Order also encourages the Chair of the FTC to address unfair occupational licensing restrictions and, together with the Attorney General, consider whether to revise antitrust guidance for Human Resources professionals. In 2016, the Department of Justice and FTC issued guidance to HR professionals to highlight potential antitrust violations between employers. The guidance focused on wage-fixing agreements and no poaching agreements between employers that likely violate antitrust laws.
In addition to encouraging the Chair of the FTC and many other agency secretaries to consider various actions, President Biden has ordered the Secretary of the Treasury to direct the Office of Economic Policy to work with others to submit a report detailing the effects of lack of competition on labor markets. That report is due to the Chair of the White House Competition Council within 180 days of the Executive Order.
President Biden encourages agencies to comply with his Executive Order, and employers should expect the Chair of the FTC to do so. However, the practical effects of this Executive Order and the scope of any new FTC rules remain to be seen. No specific changes appear to be imminent, but employers need to be aware of the Administration’s movement towards limiting non-compete agreements.