Continuing the recent series of actions across the Biden administration in response to the July 2021 Executive Order on “Advancing Competition in the American Economy,” on March 7, 2022, the U.S. Treasury Department (Treasury ) released a report titled “The State of Labor Marketplace Competition,” and on March 10, 2022, the U.S. Departments of Justice (DOJ) and Labor (DOL) announced a Memorandum of Understanding (MOU) for strengthen and coordinate enforcement efforts in labor markets. These developments highlight the administration’s continued attention to anti-competitive behavior in local and national labor markets and warrant close attention from employers of all sizes and in all sectors.
Detailed cash report
The Treasury report aims to “summarize the prevalence and impact of uncompetitive business behavior in labor markets”.
It focuses on both inter-employer conduct– such as sharing salary information, entering into non-poaching agreements and outright conspiracies to fix salaries – and employer-employee conduct— like forcing workers to sign non-compete agreements, binding arbitration agreements and class action waivers, the misclassification of employees as independent contractors, and the opacity surrounding employee pay rates — as being potentially anti-competitive and contributing to the power imbalance between employers and employees in labor markets.
The structures of various labor markets, including low unionization rates overall, the “cracking” of workplaces such as a wide variety of job functions (for examplejanitorial or catering) are outsourced from internal employees to external contractors, and professional licensing requirements imposed by federal, state and/or local governments are highlighted as having overall negative effects on the competitiveness of various labor markets.
The report estimates that the market power of employers is causing wages to fall by about 20% per to a fully competitive labor market, and notes that the harms that arise from a lack of competition in the labor market disproportionately impact low-income occupations, women, and people of color.
The report concludes by pointing out that the negative effects on workers of limited competition in labor markets have wider effects on labor markets, the firms participating in them and the economy as a whole.
Finally, the report specifically examines labor markets in health care, agriculture and minor league baseball, and describes the Biden administration’s efforts to increase competition and deter and punish anti-competitive behavior in labor markets across the country.
The Memorandum of Understanding (MOU)
The DOJ and DOL MoU also emphasizes “the shared interest in protecting workers who have been harmed or are at risk of harm as a result of anti-competitive behavior,” as noted by the Assistant Attorney General Jonathan Kanter in the joint press release announcing the memorandum of understanding, “[p]Protecting the right of workers to earn a fair wage is central to the work of both our agencies and will continue to be the subject of extraordinary vigilance by the Antitrust Division.
The MOU spells out the DOJ and DOL’s intention to “share law enforcement information, collaborate on new policies, and ensure workers are protected from employer collusion and illegal behavior.” “.
Key points to remember
The Treasury report focuses on several ways in which the market power of employers in the labor market is believed to produce negative impacts on labor market participants, including:
Sharing of information and agreements between employers;
Restrictive employment policies such as non-competition and arbitration agreements; and
Misclassification of employees as independent contractors.
With these as the driving forces, employers should expect that there are likely to be more enforcement actions brought to challenge these practices in the future.
Information sharing and agreements between employers
Although information sharing or agreements between employers may have legitimate and pro-competitive objectives, employers, particularly large employers and employers of highly skilled or specialized labour, should expect that these types of agreements be subject to further examination in the future.
These practices can take a variety of forms, ranging from participation in professional association or industry surveys of employee wages, benefits or terms of employment to non-poaching agreements or, extreme, agreements between different employers to fix the wages to be paid for different categories. employees.
Restrictive employment conditions
Similarly, an employer may have valid reasons for wanting to protect trade secrets, intellectual property, customer lists, etc., by using non-disclosure, non-competition or other covenants ancillary to a work contract. However, the potential for these types of agreements to have chilling effects on employee mobility is also likely to attract increased scrutiny from federal regulators.
The likelihood of government investigations and enforcement action is higher in less skilled employment, where the connection to a legitimate interest in protecting the employer’s intellectual property is lessened and the restrictive conditions are less narrowly tailored to protecting the employer’s pro-competitive interests, such as non-competition clauses that are potentially unlimited in time or location.
It is also likely that mandatory arbitration and class action waiver clauses will come under scrutiny in the future, reflecting a growing hostility to these types of clauses in the employment context.
Misclassification of employees
The practice of misclassifying employees as independent contractors, denounced in the Treasury report as a practice whereby employers shift responsibility for taxes and benefits to misclassified employees, is another area susceptible to be subject to scrutiny by regulators, particularly in light of the Memorandum of Understanding coordinating the enforcement efforts of the DOJ and DOL.
What does that mean
The Biden administration’s marked shift in attitude toward the labor market plagued by anti-competitive behavior is evidenced by its willingness to endorse economic literature that supports the regulation of employer practices in labor markets. work. Therefore, employers should expect increased scrutiny of their employment practices in the years to come.
Employers can expect greater regulatory scrutiny even where employment practices have not come to the attention of regulators in the past, where employers are not “large” relative to other employers in labor market and where labor markets are perceived to be highly competitive for employers. actually participate in the day-to-day hiring process.
Employers should be especially careful about sharing information or entering into agreements with other competing employers, as these types of practices can lead to costly and time-consuming government investigations, not to mention the risk of subsequent private litigation.
Employers can manage the business risks posed by this increased emphasis on competition in labor markets, in consultation with relevant antitrust and labor counsel, by:
Implement robust compliance programs including training for HR personnel, business leaders and other employees in roles that may involve interaction with competitors, to ensure they are aware of the scope and appropriate limits of conduct in recruiting employees and interacting with competitors;
Engage in periodic reassessments of their labor and employment agreements, practices and policies to ensure that any particularly risky policies, such as restrictive covenants in employment contracts, are closely tailored to protect legitimate interests of the employer without being too broad to invite regulatory review or litigation; and
Ensure that the company’s approach to classifying workers as employees or independent contractors complies with applicable legal standards.