In late April, HouseDemocrats revealed some specific proposals in a slate of bills seton changing the application of antitrust law to employment issues.(Photo: Shutterstock)

Much has been made of the anticipated “Blue Wave” in theupcoming November midterms.  Last July,Democrats unveiled a set of legislative priorities—collectivelyreferred to as “A Better Deal”—they intended to trumpet to connectwith voters and ride to congressional majorities.  Whileproposals such as “Medicare for All” and a $15 minimum federalwage garner substantial coverage, others have flown under theradar.

One of these less discussed items—but arguably no lesssignificant—is the call for aggressive expansion of the antitrust laws. The details have varied, butthe common tenet seems to be a shift in the goals ofantitrust—taking it from a competition-protecting doctrine that hasfocused primarily on consumer-welfare for the past 40 years, to amulti-purpose regime tasked with promoting social goals such asemployment and small business concerns, a philosophychampioned by Justice Brandeis that some argue was the originalintent of the Sherman Act.

In late April, House Democrats revealed some specific proposalsin a slate of bills set on changing the application of antitrustlaw to employment issues, manifested in proposed legislation suchas the End Employer Collusion Act and the Workforce Mobility Act.Representative Keith Ellison (D.-MN) introduced the End EmployerCollusion Act, which broadly bans all agreements between employersnot to poach each other's employees. (A similarbill was introduced by Senators Cory Brooker and Elizabeth Warrenin March.)

The Workforce Mobility Act (introduced by Rep. Joseph Crowley(D.-NY)) would presume non-compete provisions in employmentagreements to be illegal unless the employer can show that theprovision is not anticompetitive. Despite their superficial appeal,a deeper dive into the conduct these bills would prohibit may beuseful to understand the potential for these proposals to limit thecompetitive benefits no-poach and non-compete arrangements oftenbring.

Tepid wage growth in a warm economy

Economic prosperity is a common answer Americans give when askedabout the most important concerns facing the country, even thoughunemployment is at 17-year lows, and the continued streak ofeconomic growth nears a national record (Most Important Problem,Gallup, April 2018). This is likely due to several factors, one ofwhich may be a slower climb in employee wages than some expected,given the nation's low unemployment numbers.

While many rationales have been proffered for this apparentdiscrepancy—e.g., globalization, slow gains in productivity,etc.—the representatives behind these bills are assigning at leastpart of the blame toward the antitrust treatment of no-poachagreements between employers and non-compete covenants inemployment contacts. They argue that the judicial application ofthe antitrust laws has been too permissive of the barriers theseagreements erect in worker mobility, which has led to downwardpressure on wages.

Application of the antitrust laws

Unsurprisingly, such agreements are already illegal under theantitrust laws when they are adjudged to be anticompetitive. Butwhat is an anticompetitive agreement? Courts generally make thatdetermination after a thorough, fact-intensive review of therestraint and its effects on competition in the relevantmarketplace. This analysis is commonly referred to as the “rule ofreason.” For example, a government agency bringing an antitrustchallenge against an agreement between employers not to recruiteach other's workers would need to establish that the agreement'santicompetitive effects in the relevant market for their employeesoutweigh its procompetitive (i.e., legitimate business)justifications. An employee arguing that his non-compete covenantwith his employer violates the antitrust laws would need to provethe same.

The proposed End Employer Collusion Act

Courts have historically evaluated agreements between employersnot to recruit each other's employees under the rule of reason.Nevertheless, the Department of Justice (DOJ) and Federal TradeCommission (FTC) announced in their October 2016 “AntitrustGuidance for Human Resource Professionals” (the Guidance) that theywould treat these agreements as “per se illegal”—which nocourt ever has—if the arrangements are “not reasonably necessary toa larger legitimate collaboration between the employers.”

Put differently, the antitrust agencies will condemn nakedno-poach arrangements without analyzing the competitive effects.The Guidance also explained that the Antitrust Division of the DOJwill consider criminal sanctions against the parties to theseagreements, and in January 2018 the division's assistant attorneygeneral said that criminal cases in this area would be coming soon.(The FTC does not have the statutory authority to bring criminalcharges, but can refer illicit activity to the DOJ forprosecution.) Yet even in this aggressive guidance, the antitrustagencies still recognize that no-poach agreements can beprocompetitive when they are reasonably necessary to legitimatecollaborations or transactions, such as in a joint venture ormerger context. In those circumstances, a no-poaching agreementwill likely withstand antitrust scrutiny if the agreement is both(i) limited in time and scope and (ii) conducive to aprocompetitive purpose, such as increase in R&D or thefacilitation of an efficiency-producing merger.

The proposed End Employer Collusion Act would go even fartherthan the antitrust agencies and outlaw all no-poach agreements,regardless of their procompetitive benefits or previous treatmentunder the rule of reason. No longer could courts account for thenuances that often inform whether the restraint actually promotesor hinders competition. This may deprive a relevant marketplace ofprocompetitive benefits; after all, companies may be less eager toenter into joint ventures for new technologies if they know theircollaborator could exploit the arrangement to siphon away talentedengineers. An interested buyer of a particular business unit mayhave the capabilities to raise the unit's output or make it moreefficient, but will this procompetitive purchaser move forwardknowing the seller can hire back its former employees immediatelyafter receiving the check?

Both the antitrust agencies and the federal judiciary have longrecognized that limited no-poach provisions are reasonablynecessary to avoid these anticompetitive outcomes. With its blanketprohibition, the End Employer Collusion Act would represent apolicy shift if enacted—that the procompetitive effects ofno-poaches are less important than their potential restraint onemployee earnings.

The proposed Workforce Mobility Act

Like no-poach agreements, non-compete agreements in theemployer/employee setting have traditionally been analyzed (by boththe courts and antitrust agencies) under the rule of reason,largely due to the procompetitive outcomes they may facilitate.These include promoting employer investment into employee training,as well as safeguarding proprietary information and valuablebusiness relationships that employers can leverage into theefficient delivery of goods and services to the ultimate benefit ofconsumers. Such benefits often outweigh competitive concerns andsurvive a rule of reason analysis when (i) the non-compete covenantonly applies for a reasonable amount of time after the employmentperiod, (ii) is limited in geographic scope, and (iii) is matchedto the specific type of work performed by the employee.

Representative Crowley's bill is in tension with decades ofprecedent by designating non-compete covenants as presumptivelyanticompetitive in violation of the antitrust laws. It would shiftthe burden to employers to demonstrate (by a preponderance of theevidence standard) that the procompetitive effects of thenon-compete outweigh the anticompetitive harm. In other words, theemployer holding the non-compete would be guilty until proveninnocent. Therefore the Workforce Mobility Act may be worthtracking for employers to avoid surprises with their non-competearrangements that have long been acceptable under the antitrustlaws.

Conclusion

It remains to be seen how much traction these legislativeproposals will garner; as of this writing, these bills do notappear to have the bipartisan support or consensus that has longbeen a feature of antitrust in the United States. Times changehowever, and the political nature of antitrust may change with itif Democrats double down on their stance to push the doctrine intouncharted territory. Given their special election success duringthe Trump administration and the traditional gains made by theminority party in the mid-terms, a “Blue Wave” appears a very realpossibility. Accordingly, it may be wise for employers to monitorthese proposals closely.

Shepard Goldfein and KarenHoffman Lent are partners at Skadden, Arps, Slate, Meagher &Flom.  Benjamin Salzer, an associate at the firm, assistedin the preparation of this column.