Federal crackdown on worker mobility restrictions continues despite early setbacks

6 November 2024 8 min read

At a glance

The Biden Administration prioritized worker mobility in antitrust enforcement, despite setbacks in previous efforts, with a whole-of-government approach beyond just the Department of Justice (DOJ) and Federal Trade Commission (FTC).
The FTC’s rule banning non-compete agreements faced legal challenges, including a nationwide injunction from a Texas court, but the agency continues to pursue enforcement actions against non-competes deemed unfair.
The National Labor Relations Board (NLRB) is actively prosecuting non-compete provisions under the National Labor Relations Act (NLRA), with recent memos indicating a push for employee relief from harmful non-compete clauses.
Federal agencies, including the NLRB and FTC, are investigating and challenging no-poach agreements, with ongoing cases highlighting the commitment to combat these practices despite past prosecution failures.
Despite roadblocks, the DOJ and FTC remain committed to their stated cause, and employers should not read initial difficulties as the final word on these issues.

Throughout the Biden Administration, worker mobility has been a touchstone of federal antitrust enforcement priorities. Despite several previous and well-publicized setbacks, federal agencies continue to pursue enforcement and regulatory activity to advance this agenda.

By pivoting in enforcement efforts and approaches, as well as by adopting a whole-of-government approach to enforcement that goes beyond the principal competition enforcement agencies – the Antitrust Division of the DOJ and the FTC – the Biden Administration is continuing to pursue what it views (rightly or wrongly) as worker mobility restrictions.

Below we summarize the latest developments related to non-competes, no-poach agreements, forfeitures for competition, and more, as well as outline actions for employers to consider when aiming to minimize enforcement risk.

Non-compete agreements

After finalizing its rule banning non-competes in April 2024 (originally scheduled to go into effect on September 4, 2024), the FTC ran into setbacks by late summer. The rule was met with immediate challenges in litigation, and, by late August, a federal court in Texas set aside the rule on a nationwide basis.

Despite the court’s ruling, however, the FTC pledged to continue its fight against non-compete clauses. In the immediate wake of the opinion, an FTC spokesperson noted that the decision “does not prevent the FTC from addressing non-competes through case-by-case enforcement actions,” meaning that the FTC still might investigate and ultimately challenge non-competes that it can prove violate Section 5 of the FTC Act’s prohibition of 'unfair methods of competition', as it did in early 2023.

Additionally, the agency appealed a separate, preliminary injunction of the rule issued by a federal court in Florida, and, on October 19, 2024, it filed a notice of appeal of the Texas decision setting aside the rule. The appeals set up challenges in both the Fifth and Eleventh Circuit and create the potential for a circuit split that ultimately could draw the attention of the Supreme Court.

The FTC also remains active in encouraging states to enact legislation restricting the use of non-competes, sharing its research, analysis, and findings from its own rulemaking process with state lawmakers.

The FTC is not the only federal agency targeting non-competes. An October 2024 memorandum from the NLRB General Counsel (GC) expanded upon a May 2023 memo urging the NLRB to find certain non-compete provisions unlawful under the NLRA.

The October memo outlines the GC’s intent both to prosecute employers who require that their employees sign non-compete or 'stay-or-pay' provisions and – importantly – to seek make-whole relief for employees financially harmed by the provisions. The memo advocates that employees who can demonstrate either that they were deprived of a better job opportunity as a result of the non-compete provision or suffered harm or costs from post-employment compliance with a non-compete provision be eligible for monetary relief from their employer.

The GC also proposes a rebuttable presumption against the employer regarding any stay-or-play provision that requires an employee to pay their employer if they separate from employment – either voluntarily or involuntarily – within a certain timeframe.

The memo clarified that the GC would not prosecute existing stay-or-pay arrangements remedied by December 6, 2024. An employer can cure if it cancels the debt, notifies employees of the release of their repayment obligation, retracts any debt collection enforcement action, and, if appropriate, returns any repayments collected from employees.

Notwithstanding the GC’s position, NLRB administrative law judges have reached divergent decisions on the lawfulness of non-competes. In June 2024, an NLRB administrative law judge ruled that an employer’s non-compete and non-solicitation clauses were overbroad and violated the NLRA. The Administrative Law Judge (ALJ) found that the non-compete clause at issue would deter a reasonable employee from engaging in protected activities because employees who know that they are barred from being involved with a company that operates a similar or competitive business to their employer “will logically be more fearful of being fired and less willing to rock the boat because they face the prospect of being unable to find any work in their geographic area if they are fired or forced to leave their job.”

In October 2024, however, another ALJ ruled that a non-competition clause in an employer’s handbook and severance agreements did not violate the NLRA, saying that “the board does not protect employees that solicit their co-workers to leave their employment to go work for a competitor when unrelated to organizing activity or for mutual aid and protection.”

Both decisions are pending before the NLRB.

No-poach agreements

Similarly, despite a string of prosecutions that failed to obtain convictions by DOJ’s Antitrust Division, federal agencies continue to pledge further challenges to what they see as 'no-poach' agreements.

The NLRB issued a complaint in September 2024 alleging that a provision in the contracts of a building maintenance company that prohibited the company’s client buildings from hiring its workers violates the NLRA. The matter is pending in New Jersey, with an ALJ hearing set for November 2024.

Shortly after this NLRB complaint was filed, press reports emerged that the FTC – not the DOJ, which has criminal enforcement authority (the FTC does not) and has pursued no-poach matters as criminal offenses – was investigating the conduct that was the subject of the complaint.

The FTC investigation, if true, may be just another front opened in the war against no-poach agreements, as DOJ’s most senior official for criminal antitrust enforcement recently said that the Antitrust Division’s prosecutors had multiple open investigations and were receiving leniency applications in labor market cases. As he has in the past, he pledged that the cases remained a Division priority and said that prosecutors were “further along the curve in terms of lessons learned” from earlier cases. He further cautioned that the lack of scheduled trials should not be interpreted as a de-emphasis on the issue.

Employer market power

In September 2024, the DOJ filed a statement of interest urging a federal court not to dismiss a private class action lawsuit in which the plaintiff class alleged that a hospital monopolized a labor market to suppress healthcare worker wages and mobility in violation of Section 2 of the Sherman Act. According to the DOJ, the allegations in the complaint, which include the anticompetitive use of non-competes, 'no-rehire,' and training repayment provisions – particularly when considered in the context of multiple acquisitions of competing employers – “suggests a breakdown in the competitive process harmful to tens of thousands of healthcare workers and hundreds of thousands of patients.” DOJ’s statement of interest posits that, even if some of the provisions in isolation would be lawful, “taken as a whole … they plausibly are part of an ‘overarching anti-competitive scheme.’”

This position that certain employers might have monopoly power in local markets could lead to more litigation or enforcement activity. Any such efforts can be bolstered by a recent Bureau of Labor Statistics (BLS) study, which found that increased employer concentration in local labor markets leads to lower wages and reduced job mobility.

Cracks in the wall?

Despite these seeming adaptations to continue a year long trend of government enforcement being deployed to protect worker mobility, two developments suggest a possible reversion to a less aggressive stance.

In late September, the FTC without explanation withdrew from an interagency memorandum of understanding (MOU) that it had entered with DOJ’s Antitrust Division, the NLRB, and the Department of Labor (DOL) less than a month earlier, under which the agencies committed to assist each other in the review of labor issues in merger investigations. While (i) the FTC said that it would “continue to closely scrutinize all issues related to mergers, including potential impacts on labor,” (ii) the MOU itself was unnecessary for the agencies’ cooperation, and (iii) the FTC did not withdraw from bilateral MOUs with the NLRB and DOL, the agency’s sudden withdrawal suggested some deviation from its earlier, fully committed course.

A partial explanation for its withdrawal might involve the FTC’s final rule changes to the Premerger Notification and Report form under the Hart-Scott-Rodino Act, which prohibits parties from closing certain mergers or acquisitions without first providing detailed information to the FTC and DOJ for the agencies’ review and investigation of the likely competitive effects of the transaction. Despite an initial proposal in June 2023 that would have required information and a detailed analysis of impacts on workers, the final rule did not include this provision, although a statement from the three Democratic commissioners indicates that they retained these concerns and removed the proposed labor-based provisions as a matter of expediency to finalize the rule change.

What’s next?

Despite roadblocks, the DOJ and FTC remain committed to their stated cause, and employers should not read initial difficulties as the final word on these issues. The DOJ and FTC have been joined by other agencies, including the NLRB, in their efforts to battle non-competes, no-poach agreements, and other covenants that govern worker mobility as unlawful anti-competitive restraints.

The near- and medium-term future suggests a number of likely developments that could greatly shape the legal and enforcement landscape around these issues. Appellate rulings could either chasten or empower the agencies’ efforts; the agencies can commence new enforcement actions that could generate new legal rulings; and the November elections will have a significant impact on the leadership of federal agencies. On this last point, however, DOJ’s hostility to no-poach agreements has proven durable across the Obama, Trump, and Biden Administrations.

In the meantime, employers are encouraged to:

take stock of and evaluate their existing use of non-competes and other restrictive covenants;
analyze the business justifications and goals for imposing any worker restrictions, and consider alternative means of achieving those goals;
consider labor market issues early in the context of all deals;
take caution with information sharing practices, including third-party benchmarking; and
develop antitrust compliance training specific to the HR function.

For any questions regarding these topics, please contact the authors or your DLA Piper relationship attorney. You can find related resources on the DLA Piper Non-competes and Competition Enforcement Hub.