Eighteen state attorneys general are increasing their activism, looking for additional tools to challenge employers’ restrictions on employees. In addition to potential state law tools, they now are urging the Federal Trade Commission to increase antitrust enforcement to try to invalidate or severely limit the use of non-compete agreements, no-poach agreements and merger activity. Employers should take note that government enforcers may be increasingly focused not just on antitrust issues affecting consumers, but also as they relate to the marketplace for workers.
In connection with the Federal Trade Commission’s (FTC) public hearings on Competition and Consumer Protection in the 21st Century, eighteen state attorneys general  recently submitted a detailed comment letter to the FTC, arguing for increased emphasis on labor and workforce-related issues in antitrust enforcement. The letter addresses how labor issues are analyzed in antitrust review, describes significant labor-related antitrust enforcement activity from recent years (which we have covered in the past as well) and provides some recommendations for future enforcement activity and strategies.
One of the main arguments made in the attorneys general letter is that the antitrust laws should be used to regulate employment-related agreements because, as they claim, the analysis of labor markets under antitrust laws is fundamentally the same as analysis of consumer product markets under antitrust laws. Therefore, they argue that anticompetitive behavior in labor markets can just as readily constitute a violation of antitrust laws as anticompetitive behavior in consumer product markets.
The letter focuses on three specific types of employee-related agreements and conduct that they claim can result in anticompetitive behavior in labor markets—(1) no-poach agreements, (2) non-compete agreements and (3) mergers—and suggests how the FTC should exercise its antitrust enforcement authority.
No-poach agreements generally can be either “horizontal” agreements between two employers not to hire or solicit each other’s employees, as was alleged in the Duke/UNC class action we discussed recently, or more “vertical” agreements such as those many state attorneys general recently challenged in fast food and other franchises. The signatories claim that there is a general consensus that horizontal agreements are per se invalid under federal and state antitrust laws, and as the magnitude of the Duke/UNC settlement suggests, there may indeed be significant potential antitrust exposure with the use of such agreements.
The potential antitrust concerns with the use of vertical agreements, on the other hand, are less clear: while some state enforcers argue that such agreements generally should be subject to the same standard of review as horizontal agreements, the FTC has suggested a more detailed, fact-intensive analysis under which the agreements might be deemed valid and enforceable. The signatories argue that the purported benefits of even the more vertical no-poach agreements, such as labor cost savings that can be passed onto the consumer, do not outweigh the negative anti-competitive effects on the labor market itself, and therefore, the FTC should subject such agreements to the same strict standard for enforceability that many state governments apply already. The signatories further advocate for an outright federal ban on “intra-franchise no-poach agreements.” As noted, the FTC thus far has not adopted the approach advocated by the attorneys general.
Non-compete agreements also have been subject to increased government scrutiny and activism over the past several years. However, as the letter indicates (and as has been the case in the examples we have discussed in the past), that scrutiny usually has not come in the form of enforcement actions under state or federal antitrust laws, but rather under state laws that specifically govern non-competes and related agreements. Several states have enacted legislation at least partially limiting the enforceability of non-compete agreements, and legislation has been proposed in several other states and in Congress. Additionally, the common law of numerous states already limits the enforceability of these agreements in various ways. In this letter, the signatories argue that the FTC should expand on those existing restrictions and, at a minimum, ban non-compete agreements for low-wage workers. They also argue that the FTC should consider using its antitrust enforcement authority to prohibit the enforcement of such agreements, particularly when they have the effect of entrenching monopoly power by, for example, limiting new upstarts’ abilities to hire workers away from incumbents.
As to mergers, the signatories argue that antitrust scrutiny should be applied to merger activity not only with respect to the effects on the end consumer, but also to the effects on the entities that themselves are consumers in the labor market (i.e., employers). The signatories note that mergers involving entities that do not compete in downstream product or service markets nevertheless might compete for labor, and their consolidation could drive down competition and demand for workers, not all that unlike the effects of a horizontal no-poaching agreement. While the attorneys general do not purport to identify a clear solution or recommendation for how to address mergers, they make clear that current approaches to evaluating merger activity do not adequately take all relevant factors into consideration.
The signatories represent over a third of all states and nearly half of the total US population. While the effect of this letter’s recommendations on the federal government’s enforcement plans and priorities remains to be seen, the views expressed in the letter make clear that many state enforcers are acutely interested in trying to regulate a wide variety of business activities and practices on workers. Employers should, as always, ensure that any non-compete or non-solicit agreements with workers, or horizontal or vertical agreements with other potential employers, are narrowly tailored to serve legitimate business objectives beyond just limiting worker mobility to reduce labor costs. Employers also should carefully scrutinize their agreements to ensure that they comply with the relevant state’s common and statutory laws. Similarly, employers should not take for granted that worker layoffs following a merger will be viewed by enforcers as an efficiency gain that ultimately benefits consumers.