Employee Talent Wars Gain Unprecedented Ammunition From Changing Antitrust Landscape

• Published date: 16 June 2022
• Subject Matter: Anti-trust/Competition Law, Employment and HR, Antitrust, EU Competition , Contract of Employment, Employee Rights/ Labour Relations
• Law Firm: Holland & Knight
• Author: Mr Jerome Hoffman, Caitlin Saladrigas and Emily McWey

Highlights

• The labor market has become more challenging for employers following COVID-19, and the need for well-trained, experienced employees far exceeds the supply.
• In addition to undermining investments in training and professional development, rampant departures are threatening the ability of employers to maintain confidential and proprietary information - including trade secrets.
• The legal landscape also is affecting the labor market, with enforcement of traditional non-compete agreements by employers becoming more difficult in recent years.

The current labor market is fraught with challenges for employers. In the wake of the COVID-19 market disruptions, the demand for employees, especially for experienced or highly trained employees, far exceeds the supply. Employee retention is a problem facing employers in all industries, from healthcare and life sciences to technology, manufacturing and hospitality. Rampant departures are undermining investments in training and professional development and threatening employers' ability to maintain confidential and proprietary information, including trade secrets.

In addition to these tough labor market conditions, the legal landscape affecting employers' abilities to retain employees has undergone significant changes. First, the enforcement of traditional non-compete agreements by employers has become more difficult over the past several years. As detailed further below, many states have outlawed or severely curtailed the use of non-compete agreements such that employers should tread carefully when seeking to retain employees by contracting in this way. Second, no-poach agreements, which have been used formally and informally for many years between employers to avoid "poaching" one another's talent, are facing private lawsuits by employees and aggressive government enforcement efforts. This Holland & Knight alert explores both issues and provides employers with guidance and best practices to navigate the increased challenges they present.

The Non-Compete Retreat

One of the most widely used methods for employers to retain employees, or at least limit their attrition, is through the use of non-compete provisions or agreements in employment contracts. In essence, a non-compete agreement prohibits employees from competing with their employer after the termination of the employment, usually within a certain time frame, industry and/or geographic area. Employers commonly use such terms to retain talent and reduce the impact that a departing employee may have on business operations. State and federal antitrust laws have traditionally deemed non-compete agreements permissible in an employment setting when reasonably tailored to address an employer's legitimate business need and if limited in geographic scope and duration. But in recent years, legislation has been enacted in several states to restrict or even prohibit non-compete agreements.

For example, in 2012, as reflected in the graphic below, a majority of states did not regulate the use of non-compete agreements at all:

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However, in the ensuing decade, policy perspectives began to shift against the use of non-competes. Between 2016 and 2021, 10 states enacted new legislation banning the use of non-compete agreements for low-wage or low-skilled workers: Illinois, Massachusetts, Maine, Maryland, New Hampshire, Rhode Island, Virginia, Washington, Oregon and Nevada. In addition, several jurisdictions have imposed widely varying employee notice requirements, including Oregon...