In-house counsel might take a two-pronged strategy in dealing with the Biden administration’s heightened concerns over labor-market competition issues, an antitrust specialist says. 

Although the sweeping noncompete ban the Federal Trade Commission proposed in January has attracted much of the attention, the more immediate concern for in-house counsel is non-solicitation and no-poach agreements, Colin Kass of Proskauer Rose told Legal Dive. 

Not only does the proposed noncompete ban wrap in non-solicitation agreements if they’re found to be functioning as noncompetes, but the Department of Justice for the last dozen years or so has been aggressively going after these employer-to-employer agreements in both criminal and civil actions. 

“Legal departments need to get a handle on these agreements,” Kass said. “Make sure your HR department knows there’s real risk there. You want to make sure you’re reviewing any potential agreement and there are no informal side agreements, by low-level employees or high-level employees.”

The federal government’s record going after companies for non-solicitation and no-poach agreements isn’t great. Although some companies have entered into consent decrees with DOJ for violations, in virtually all cases heard by a jury, the agency has lost. Even so, the process is stressful enough that in-house counsel want to protect their company from having to go through it. 

“Nobody wants to be under criminal indictment or investigation,” said Kass, co-chair of Proskauer's antitrust group and a former Kirkland & Ellis partner. “And there are also FTC cases, private cases and class actions, as well as state AG actions. It’s a big mess.”

Employer-to-employer agreements

Against this backdrop, in-house counsel want to make sure they get a handle on what people inside the company are doing on non-solicitation and no-poach matters, because even certain types of conversations they’re having with counterparts in other companies can be construed as collusion if it touches on these issues.  

“It’s something that needs to be on people’s radar and they need to know about these agreements, make sure you don’t inadvertently enter into one of these agreements or have conversations that can be misconstrued as having agreed to something,” he said. “And if you do enter into one of these, you can justify it.”

The federal government has been going after non-solicitations that are between two pure competitors and, more recently, between partners in a business venture, including franchise-franchisee and contractor-subcontractor relationships. 

Contractor-subcontractor relationships are found extensively in the healthcare field, which has been a target of DOJ action.

“To some extent, DOJ initially started going after competitors that have nothing to do with each other but that has morphed into going after business venture agreements as well,” he said. 

Employer-to-employee agreements

The other labor-competition prong, employer-to-employee noncompetes, should be on in-house counsel’s radar because if the FTC’s ban takes effect, it would represent a sea change for companies. 

But Kass cautioned against making sweeping changes now, especially if your company’s use of noncompetes is a critical part of its business model. Instead, counsel should be thinking about what their strategy will be should noncompetes go away. 

“The FTC rule will likely come out soon, but then it's going to get challenged in the courts almost immediately,” he said. “The concept that you’re going to upend your business model in anticipation of the FTC’s rule getting enacted in some form is premature, although companies have to make their own decisions about this.”

The one change you might make is to any long-term contracts you enter into with employees. If the term of the contract extends long enough that noncompetes go away before the term ends, that might warrant rethinking what that contract looks like. 

“Those [situations] are probably rare,” he said. But “you [might] want to do something else at the outset.”

What the revamped contracts would look like would differ based on the industry or market and other circumstances. 

It’s because these agreements need to be looked at on a case-by-case basis that the FTC’s rule is likely to be challenged in court right away, Kass suggested.

The agency’s goal of sweeping every noncompete into a ban is a draconian way to manage a practice that on the whole isn’t necessarily a problem, he said. 

“If an across-the-board ban were successful, it would wreak havoc in a lot of industries where noncompetes are used to protect confidential information and trade secrets,” Kass said. “You invest a lot of money into your employees, to teach them and have them promote your products, and one way to protect that investment is through a noncompete so they don’t take your information and the next day use it against you. So, the rule would undermine that tool.”