Executive order calls for more aggressive anti-trust enforcement and limited use of non-compete agreements

By: Joleen East Posted on: Saturday, November 6th, 2021

What is the status of Executive Order 14036?

On July 9, 2021, President Joe Biden issued an Executive Order (EO 14036) titled “Promoting Competition in the American Economy.” The Order includes 72 initiatives to tackle what Biden perceives to be the most pressing competition issues across the economy. The EO specifically encourages anti-trust agencies to focus their enforcement efforts in key, identified markets and coordinates other agencies’ ongoing response by calling on the Department of Justice and the Federal Trade Commission to enforce antitrust laws more vigorously. The EO itself addresses various topics and markets; however, its discussion of the labor market is applicable to the service industry’s hiring of employees who may be subject to non-competes, non-solicitation agreements or other restrictive covenants and preparation of same for these employees.

The EO states that companies stifle competition in labor markets with non-compete clauses by preventing workers’ ability to demand higher wages and to create a better work environment. Therefore, the EO encourages the FTC to limit or ban non-compete agreements entirely. The specific language of the EO addressing this issue is as follows:

To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.

As to the current status of the FTC’s enforcement of the EO, there does not appear to be any new developments related to the actual enforcement of any non-competes or non-solicitation agreements since the EO was signed. Since July 9, 2021, only nine cases have been decided involving the FTC. Only one case involves an antitrust violation (DaVita acquiring substantially all of the dialysis assets of the dialysis business of the University of Utah)., No case addresses the enforcement of non-compete agreements or other restrictive covenants.  Id.

Additionally, the FTC has had a total of 77 press releases since July 9, 2021; however only one addresses a workshop that will be held regarding this topic. On October 27, 2021, the FTC and the DOJ’s Antitrust Division announced that they will host a virtual workshop called “Making Competition Work: Promoting Competition in Labor Markets” on December 6th and 7th via webcast on the FTC’s website. Below is an excerpt from the FTC’s website regarding the workshop and registration:

Making Competition Work: Promoting Competition in Labor Markets

DEC 6, 2021 9:00AM-5:00PM
DEC 7, 2021 9:00AM

EVENT DESCRIPTION

“Making Competition Work: Promoting Competition in Labor Markets,” will bring together lawyers, economists, academics, policy experts, labor groups, and workers, and will explore recent developments at the intersection of antitrust and labor, as well as implications for efforts to protect and empower workers through competition enforcement and rulemaking.

The workshop will bring together lawyers, economists, academics, policy experts, labor groups, and workers to discuss efforts to promote competitive labor markets and worker mobility. They will specifically address competition issues such as the increased use of restrictive contractual clauses in labor agreements, including non-competes and non-disclosure agreements. Panelists will also discuss potential steps antitrust enforcers may take to ensure fair competition for workers.

Attorneys and scholars who study competition policy expect the FTC to propose a federal rule that would outlaw non-competes for workers below a certain income level and may impose limits on the duration or scope of the clauses. But they believe an outright ban is unlikely. Id. Attorneys writing on this issue agree that there is no reason for employers to abandon non-compete agreements at this point. However, they should re-evaluate their non-compete agreements by considering whether they target a protectable interest, such as consumer contacts, trade secrets, and goodwill.  Id. They also point out that the EO does not address trade secrets and, therefore, they encourage employers whose businesses are dependent on trade secrets and proprietary information to consider a trade secrets agreement separate from a non-compete agreement. Id.

To provide a brief history of this similar effort to limit or ban non-competes, Senator Marco Rubio had introduced a bill “Freedom to Compete Act” that sought to amend the Fair Labor Standards Act of 1938 to protect entry-level, low wage workers from non-compete agreements back in January of 2019. However, this bill was never signed into law. More recently in February of 2021, the “Workforce Mobility Act of 2021” was introduced in both the House and the Senate. It sought to limit the use of non-competes to situations in which a business is sold or dissolved, authorize the Department of Labor to take steps to educate the general public about non-competes, and give workers a private right of action to sue for its violation. However, there has been no activity on this legislation since then, which likely explains Biden’s decision to sign the EO.

Where Does Florida Fall Regarding the Executive Order?

So far, Florida has not taken any action in response to the EO. Currently, there is no proposed legislation pertaining to non-competes or other restrictive covenants. There are also no proposed amendment(s) to the current governing statutes §§ 542.335 and 542.336 regarding any limitation or ban of non-competes in this context. There does not appear to be any developments on this issue involving non-competes or other restrictive covenants since the Florida legislature passed § 542.336, which became effective on June 25, 2019.[1] Additionally, no cases addressing these statutes appear to have been decided on appeal since the EO was signed. However, other states like Nevada, Oregon, Illinois, and the District of Columbia have passed legislation either limiting or banning non-compete agreements. Id.

Where Does Florida Fall Regarding Enforcement of Non-Competes Generally?

It is not surprising that Florida has not (yet) reacted to the EO in any measurable way to restrict or ban non-compete agreements or restrictive covenants, considering that the language within §542.335 appears to favor employers in the enforcement of these agreements. For example:

  • Florida law requires courts to construe restrictive covenants in favor of providing reasonable protection to all legitimate business interests – 542.335(h)
  • What is a legitimate business interest?
    • Trade secrets
      • What is a trade secret?
        • Defined as information (including a formula, pattern, compilation, program, device, method, technique, or process) that derives an actual or potential independent economic value from not being generally known to or readily ascertainable by other person who can obtain economic value from its disclosure AND
        • Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. (Fla. Stat. 688.002(4))
    • Valuable confidential business/professional information that otherwise does not qualify as trade secrets
    • Substantial relationships with specific prospective or existing customers
    • Customer, patient, or client good will associated with:
      • Ongoing business practice by way of trade name/trademark, service mark or trade dress
      • A specific geographic location
      • A specific marketing or trade area
      • Extraordinary or specialized training
  • Florida law prohibits interpreting the restrictive covenant narrowly against the restraint or against the drafter of the agreement – 542.335(h)
  • Florida law also prohibits courts from refusing to enforce restrictive covenants solely on the basis that they violate public policy without making specific findings about the public policy – 542.335(i)
  • Florida law allows courts to enforce restrictive covenants by issuing temporary and permanent injunctions – 542.335(j)
  • Florida law creates a presumption of irreparable injury to the employer seeking enforcement after finding a violation has occurred. – 542.335(j)

The employer must prove that the restrictive covenant is reasonably necessary to protect the legitimate business interest. § 542.335(c). But if the employer establishes the restrictive covenant is reasonably necessary with prima facie evidence, the burden shifts to the employee to prove the restrictive covenant is overbroad, too long or not reasonably necessary. Id. At that point, the Court should only modify the restrictive covenant to what is reasonably necessary to protect the business interest, not eliminate it entirely. Id.

[1] § 542.336 narrowly prohibited and invalidated restrictive covenants for physicians who practice a “medical specialty” in a county where all physicians in that medical specialty are employed by the same entity or its affiliates.