On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy. In his order, President Biden states that companies can stifle competition with non-compete clauses—claiming 36-60 million workers are affected by non-compete agreements. During his campaign for the presidency, President Biden said he would curtail non-compete agreements in an attempt to encourage economic growth. President Biden stated, “workers should be free to take a better job if someone offers it. If your employer wants to keep you, he or she should have to make it worth your while to stay. That's the kind of competition that leads to better wages and greater dignity of work.”
The July 9th Order is President Biden’s attempt to make good on his campaign promise to limit unfair non-compete agreements. In the Order, President Biden encourages the FTC to adopt rules banning or limiting non-compete agreements. The Order is vague on details, simply stating:
To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.
The FTC will have an uphill battle in drafting rules regarding non-compete agreements. First, currently there is no body of Federal noncompete law because this is an area the states have traditionally regulated. It is not clear the FTC has any authority to suddenly dictate noncompete law in the 50 states. The FTC has already highlighted the issues it will face. In January 2020, the FTC held a workshop regarding non-compete agreements. In his opening remarks, FTC Commissioner Noah Joshua Phillips addressed the effect non-compete agreements have on employees’ mobility. However, he also addressed the several hurdles the FTC faced, “including the lack of clarity in the rulemaking authority, the traditional commitment of the issue to the states, the fact that neither the FTC nor any court has found non-competes to violate the FTC Act’s prohibition against ‘unfair methods of competition’, and the lack of a good historical precedent.”
Additionally, the order does not expressly address non-solicitation agreements regarding a company’s customers or employees, which also restrict an employee’s ability to change jobs. But it does reference “other clauses or agreements” that may limit an employee’s mobility. Moreover, it fails to acknowledge that employers typically use non-compete agreements to protect their trade secrets, business goodwill, and investment in employee training.
President Biden stated, “one in five workers without a college degree is subject to non-compete agreements.” Therefore, there is speculation that the FTC will focus its efforts on addressing non-compete agreements for low wage earners. Additionally, there would be quite a bit of time before any rules are issued by the FTC. Regardless, the lack of details leaves employers with uncertainty about their current restrictive covenants. Employers do not need to make sweeping changes to their non-compete agreements yet as a result of this Order. But employers should assess their restrictive covenants to make sure that they are narrowly tailored to meet legitimate interests, as opposed to so broad that they prevent an employee for working in an entire industry. This is also a good time for employer to enhance their cybersecurity focusing on trade secret protection.
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