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President Biden Issues Challenging Executive Order Seeking to Ban or Limit Non-Competes, Occupational Licensing Requirements, and Wage-Sharing

By Fiona W. Ong & Parker E. Thoeni - Shawe Rosenthal LLP

July 12, 2021

On July 9, 2021, President Biden signed a wide-ranging Executive Order intended to promote competition in the American economy. The E.O. contains 72 initiatives across the whole of government, several of which have a direct employment impact – specifically on non-compete agreements, occupational licensing requirements, and wage-sharing activities between employers.

In a fact sheet, the White House asserts that roughly half of private sector businesses utilize non-compete agreements, affecting up to 60 million workers, and that such agreements “stifle competition.” Additionally, almost 30% of jobs now require a license, up from 5% in the 1950s, and that only a few of such occupations are treated consistently across all 50 states. According to the White House, these requirements impede worker mobility and suppress wages. And it also contends that existing Department of Justice and Federal Trade Commission (FTC) guidance allowing third parties to provide wage data to employers, and not workers, enables employers to collaborate on wage suppression.

Thus, the E.O. “encourages” the Chair of the FTC to do the following:

• Exercise statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” In other words, as the Fact Sheet more plainly asserts, to ban or limit non-compete agreements.

• Exercise statutory rulemaking authority with regard to “unfair occupational licensing restrictions.” The Fact Sheet explains that this is intended to ban unnecessary occupational licensing restrictions that impede economic mobility.

• Along with the Attorney General, “consider whether to revise the Antitrust Guidance for Human Resource Professionals of October 2016.” This document provided HR professionals with useful guidance on complying with antitrust laws as related to agreements and communications between employers on terms and conditions of employment. Nonetheless, the fact sheet asserts the purpose of the directive is to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another – apparently by imposing more restrictions on employer communications.

The E.O. does not provide specific guidance on how these measures should be accomplished, and it is highly likely that whatever guidance is issued by the FTC will be subject to intense scrutiny and likely legal challenge.

On its face, the E.O. seemingly ignores the arguable need for noncompete agreements to protect an employer’s legitimate business interests in many instances. It also appears to ignore the fact that such agreements must meet very specific criteria in order to be enforceable – and those criteria have been developed and tested in the courts over many decades to ensure that they balance valid business interests against worker interests.

The E.O. further seems to challenge the ability of states to ensure the safety and wellbeing of their citizens by determining what standards should apply for specialized occupations – and the fact that one state may not deem such standards necessary should not prevent other states from applying a higher bar.

And the E.O. apparently does not take into account the fact that employers may wish to rely on market information in order to ensure that they are paying competitive rates. Employers are legally prohibited from sharing wage information directly with each other to collude on setting wage rates. But the targeted guidance has provided useful information to HR professionals on appropriate and legal ways to obtain employment-related information through a neutral third-party – a process that is now apparently in jeopardy.

The E.O. also sets up a White House Competition Council, consisting of many agency heads, including the Secretary of Labor. Among other things, this Council is intended to coordinate a cross-agency response to unfair competition and cooperate in implementing the E.O.

The next step will be to see what guidance the FTC issues with regard to all of these initiatives. We expect that it will be some months before they will be able to do so, and will certainly update you on such developments.

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