What do restrictive covenants have to do with COVID-19? More than you think.

Remember back in January, when I told you that restrictive covenants would be the most significant employment law issues for employers in 2020?

Well, boy, was I wrong! COVID-19 has locked up this year’s title.

However, in light of the coronavirus pandemic, the Federal Trade Commission is doubling down on its warning to prosecute companies that don’t compete fairly. And, this time, it’s with support from the U.S. Department of Justice.

Antitrust watchdogs are paying close attention.

On April 13, 2020, the DOJ and FTC issued this joint press release in which they announced that “they will protect competition for workers on the frontlines of the Coronavirus Disease 2019 (COVID-19) response in the United States by enforcing the antitrust laws against those who seek to exploit the pandemic to engage in anticompetitive conduct in labor markets.”

Translation: the agencies will take on employers, staffing companies, and recruiters, among others, that agree with one another (collude) or otherwise explore agreements to lower wages or to reduce salaries or hours worked.

Generally, we’re talking about employees in essential businesses. The DOJ has explicitly identified “doctors, nurses, first responders, and those who work in grocery stores, pharmacies, delivery and distribution networks, and warehouses, among other essential service providers on the front lines of addressing the crisis.”

But non-essential businesses should watch their backs too.

Non-compete agreements will be under close federal scrutiny.

What if you don’t run an essential business, and you have to lay employees off for lack of work? Be careful when combining that separation of employment with a non-competition agreement. At least that’s what I read between the lines of this statement from the DOJ:

The Agencies may also use their civil enforcement authority to challenge unilateral anticompetitive conduct by employers that harms competition in a labor market (monopsony power). Companies and individuals involved in the hiring, recruiting, retention, or placement of workers should be aware that anticompetitive conduct runs the risk of civil and/or criminal liability.

Got that? A big check and iron bars.

Are all non-competition agreements and other forms of restrictive covenants are illegal?

No, although much of that may depend upon the state(s) in which your business operates. But, by and large, most restrictive covenants are not illegal on their face.

However, in states where restrictive covenants are legal, employers should have a legitimate business reason for imposing a restrictive covenant on a current or former employee, especially in this COVID-19 world. Plus, the agreement should be reasonable both in time and geography.

Ultimately, as with any significant employment decision that your business makes during the COVD-19 pandemic, make sure to involve an employment lawyer to address the related legal issues, such as whether to require a restrictive covenant as a severance term.