July 09, 2021
The White House issued a fact sheet on a sweeping imminent executive order seeking to “reduce the trend of corporate consolidation, increase competition, and deliver concrete benefits to America’s… workers.” The fact sheet notes that the executive order will target non-compete agreements and focus on lowering drug costs, among several other items.
The order will target non-compete agreements, “unnecessary” licensing requirements, and the ability of employers to share information on worker pay. The administration is focusing non-compete agreements due to concerns they are increasingly used to prevent employees from leaving for better jobs. In the fact sheet, the President "encourages the FTC to ban or limit non-compete agreements." Additionally, the order calls on the FTC and DOJ to "strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another."
Our Center On Executive Compensation has expressed concerns about a blanket ban on non-compete agreements. Such agreements are necessary for specific high-level executives and critical employees (such as research & development or with access to trade secrets). A blanket ban could hinder strategic planning, developing new technologies, or investing in long-term growth.
Non-competes are covered by contract law and typically handled at the state level. There is an existing, broad body of state law requiring non-compete agreements to be reasonable in scope and duration. Several states and localities, including California, North Dakota, Oklahoma, and Washington, D.C., have largely prohibited them. Other states such as Illinois, Maryland, and Massachusetts have enacted restrictions to protect lower income employees.
The order will also include several health care items, including:
Outlook: With regard to non-compete agreements, the executive order does not call for explicit actions, but rather directs regulatory action. For example, it directs the FTC to consider banning or limiting the use of such agreements. Given that language, it is not clear how far the FTC will go toward banning non-compete agreements or other practices the administration considers problematic. The Center will continue to engage with the FTC through the process while advocating for the necessity of non-compete agreements for certain high-level or critical employees. With respect to the health care components, it is unclear if the FTC has the statutory authority to ban “pay for delay” agreements by rule. Currently, the FTC has filed numerous lawsuits in opposition to such agreements, and indicates support for legislation that would end them. In each of these areas, more will be known once the text of the executive order becomes available.