Obama Administration Targets Noncompetes and Wage Collusion

Facebook and Cisco executives say they support limits on noncompetes

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The White House announced on Oct. 25 certain steps that will be taken to address wage collusion and the overuse of noncompetition agreements in the workplace.

The action plans are in response to an executive order President Barack Obama issued in April that called for federal agencies to identify specific steps they can take to promote competition and economic growth.

Although average household incomes rose in 2015, "the president has made clear that there is still more work to do to reverse longer-run patterns of stagnant wage growth and rising income inequality," according to a White House fact sheet.

The White House said employer misuse of noncompetes and wage collusion are some of the key forces that hinder competition in the labor market.

Limiting Noncompetes

About 1 in 5 workers in the United States are bound by noncompetes that say they can't work for competing employers immediately after leaving their company, said Jason Furman, chairman of the Council of Economic Advisers, during a White House press call.

Banning noncompetes for certain categories of workers, improving transparency and fairness, and incentivizing employers to write enforceable contracts can improve the labor market, he said.

Although federal legislation has been proposed, the enforceability of noncompete agreements is evaluated under state laws, and those laws vary significantly.

Even in states like California that have broad restrictions on their use, many employers still include noncompetes in their employment contracts, Furman said. Employees who don't fully know their rights may sign those agreements and believe they have to follow their terms.

Building on White House and Department of Treasury reports that were released earlier this year, the administration released a call to action and a set of best practices for state policymakers to enact reforms that will limit the use of noncompete agreements.

The administration isn't calling for a categorical ban on noncompetes, Furman said. The goal is to eliminate the use of these agreements where they're not appropriate, like in contracts with low-wage earners, health and safety workers, or employees who are unlikely to have knowledge of trade secrets.

Facebook Head of Human Resources Lori Goler and Cisco Senior Vice President and General Counsel Mark Chandler joined the press call to say that their companies generally don't use noncompetes.

There's no place in the U.S. where its employees are asked to sign noncompetes except when Cisco is buying a company and expects the senior executives to stay on for the transition, Chandler said.

He added that Cisco strongly supports the steps the administration is proposing. Companies shouldn't be able to implement noncompetes across the board for all employees, he said. It suppresses workers, entrepreneurs and innovation.

Goler said Facebook believes that free movement is good for companies, individuals and the economy.

Wage Collusion

The Council of Economic Advisers also issued a brief explaining how wage setting by influential employers can hurt economic growth.

"Like price fixing in product markets, collusion among employers to reduce wages is illegal in the U.S. and subject to antitrust laws," according to the White House press statement.

"These types of agreements eliminate competition in the same irredeemable way as agreements to fix the prices of goods or allocate customers, which have traditionally been criminally investigated and prosecuted as cartel conduct," it said.

The Department of Justice and the Federal Trade Commission have also released guidance for HR professionals on how to identify and report collusion between competing employers that could potentially violate antitrust laws.

Among other things, the guidance emphasizes that it is illegal for employers to agree not to recruit certain employees or to fix wages.

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