FTC Democrat Urges Rulemaking on Noncompete Agreements

Stay current on the latest developments from agencies including the CFPB, Federal Reserve, FDIC, and OCC to advise clients on real-life regulatory situations.

By Alexei Alexis

Federal Trade Commissioner Rohit Chopra has emerged as a new ally to competition advocates pushing for increased use of antitrust laws to address worker issues.

Chopra, a Democrat, wants the FTC to write rules defining when noncompete agreements for employees are permissible. He raised the issue Sept. 6 in comments filed ahead of a wide-ranging series of FTC policy hearings.

Chopra’s comments came a day after four House Democrats released a report recommending that noncompete agreements be banned. The recommendation was part of a broad policy agenda about workers that called for stronger employment-based antitrust enforcement and other actions to curb the power of big corporations.

The report is a roadmap of measures that can be implemented if Democrats retake the House, Rep. Mark DeSaulnier (D-Calif.), one of the authors, told Bloomberg Law. It can also be further deployed to state and local governments.

Reps. Debbie Dingell (D-Mich.), Donald Norcross (D-N.J.), Mark Pocan (D-Wis.), and DeSaulnier proposed a ban on “non-compete, no-poaching agreements, and other types of restraints on competition in the labor market, as well as mandatory arbitration in employment contracts.”

The report was issued with the blessing of the top Democrat on the House Education and the Workforce Committee, Rep. Bobby Scott (D-Va.), who said when it was released that “we must do more to level the playing field” for workers.

Emerging Area

Chopra joins public interest advocates and congressional Democrats who have raised competition concerns about noncompete agreements, which prevent employees from working for rival firms for a period of time. Critics said many of these deals violate antitrust laws, but it’s an emerging area with no clear rules from the courts or federal regulators.

“Commissioner Chopra has pointed out a promising route forward,” Marshall Steinbaum, a fellow and research director at the Roosevelt Institute, told Bloomberg Law. “I don’t think it’s out of the question that there might be some action here.” Steinbaum also worked with the four Democrats on their report.

U.S. antitrust regulators have been criticized for not doing enough to curb anticompetitive employment practices beyond guidance issued in 2016 and a couple of cases announced this year. The government has responded by stepping up its enforcement of “no-poach” agreements in which rival companies agree not to recruit one another’s workers, but regulators haven’t given the same treatment to noncompete contracts.

The government’s unwillingness to go after employers who use noncompete agreements or other anticompetitive practices has resulted in “lower wages, higher prices, and less liberty for Americans,” Matt Stoller, a fellow at the Open Markets Institute, a competition advocacy group, told Bloomberg Law. “It’s up to the FTC to recognize this dynamic and reverse it.”

Joel Mitnick, an antitrust partner at Cadwalader, Wickersham & Taft LLP, said case-by-case litigation is generally a more flexible way to use antitrust laws.

“I think the commissioner is correct in pointing out some of the limitations, but the advantage is that it’s dynamic and can adjust to new fact situations,” he told Bloomberg Law. “Rulemaking tends to be a one-size-fits-all solution.”

‘Largely Neglected’ Authority

The upcoming FTC hearings, which will be kicked off Sept. 13-14, involve a comprehensive look at how well the agency’s competition and consumer protection approaches are working. A key question for regulators is whether enforcement practices need to be expanded or the law needs to change.

It’s the first major initiative of FTC Chairman Joseph Simons, who joined the agency with three other new commissioners, including Chopra, in the spring.

In his filing, Chopra said the commission should consider issuing rules on noncompete agreements using the agency’s “largely neglected” rulemaking authority under Section 5 of the FTC Act, which prohibits unfair methods of competition.

“As the commission undertakes a period of reflection in a time of scarce agency resources, I urge interested parties to explore whether and how rulemaking might lead to antitrust policy that is more predictable, efficient, and participatory,” he said.

The FTC and the Justice Department issued guidance in 2016 clarifying that workers may be harmed in violation of antitrust laws if companies in the same industry decide among themselves to fix wages or other terms of employment or enter into no-poach agreements. The first enforcement action at the Justice Department was in April when Knorr-Bremse AG and Wabtec Railway Electronics Inc. entered into a settlement promising to stop its no-poach deal.

The FTC announced a related settlement in July with Your Therapy Source, a Texas company that provides therapist staffing services to home health agencies. The settlement resolved FTC claims that the company colluded with a competitor to limit pay rates for their employees.

Chopra, despite supporting the action, issued a separate statement criticizing the settlement for lacking any notice or restitution to those targeted by the alleged conduct, or any admission of facts or liability.

— With assistance from Eleanor Tyler.

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Antitrust on Bloomberg Law