By: Sarah P. Reiner, Shareholder | July 15, 2021
On July 9, 2021, President Biden signed an Executive Order that requests the Federal Trade Commission (FTC) consider limiting the use of non-compete agreements. A copy of the Executive Order can be accessed here. In pertinent part, the Executive Order provides:
Section 5. Further Agency Responsibilities
(g) 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 stated purpose of the proposed ban is to encourage competition by allowing for greater employee mobility in the workplace, particularly among lower wage earners. President Biden has in the past expressed the belief that restrictive covenant agreements, and in particular non-competes, stifle competition and economic growth in the free market system.
The FTC is expected to conduct a rigorous evaluation of the use of non-competes in the workplace prior to implementing any ban or limitation. As part of that process it will likely seek public comments from stakeholders prior to making its determination on how to proceed and engaging in any formal rule-making.
Based on the language of the Executive Order, and President Biden’s expressed concerns regarding non-competes, we anticipate any ban or limitations on the use of non-competes will be focused on the "unfair" use of non-competes to limit employee mobility without a justifiable reason for doing so. For instance, the use of non-competes to restrict relatively low to moderate wage earners in the restaurant, hospitality and auto industries, such as restaurant and hotel managers, and personnel in auto sales, and auto service store managers to name a few.
At this point, we do not think that a complete ban of non-competes is likely, as it would draw significant opposition from employers across the country’s industries.
There has been no action by the FTC yet, and it remains to be seen whether and to what extent any ban on non-competes will be implemented. However, employers should review their restrictive covenant agreements and make sure that they comply with applicable state law and are narrowly tailored to protect the employer’s legitimate business interests such as trade secrets, client relationships and company good will. Employers are also encouraged, to the extent possible, to focus their restrictive covenant agreements on restrictions other than non-compete clauses which can also provide protection for legitimate business interests. These may include non-disclosure and non-solicitation provisions, which focus more specifically on the protection of confidential and proprietary business information and trade secrets and limiting a former employee’s solicitation of customers.
For additional information regarding President Biden’s proposed ban on non-competes, or an evaluation of your company’s current restrictive covenant agreements, please reach out to your GR labor and employment law counsel.