President Biden on July 9 signed a sweeping Executive Order targeting issues of competition for American businesses by directing several federal agencies – including the Federal Trade Commission (FTC) in conjunction with the Attorney General – to devise proposals to minimize anti-competitive conditions affecting the U.S. economy. In particular, for the workplace, the Order directs the assigned federal agencies to analyze non-compete agreements that may unfairly limit worker mobility. Time will tell about the scope and sweep of the federal agencies’ efforts to impact the use of non-competes for workers.
Under the auspices of promoting competition and innovation, the Order’s stated goals include to “lower prices for families, increase wages for workers, and promote innovation and even faster economic growth.”[1] While the Order contains 72 initiatives targeting over a dozen federal agencies, specific to the current use of non-compete agreements, Section 5(g) of the Order states an objective of the Federal agencies:
“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.”[2]
Thus, while the stated goal in the Fact Sheet released by the White House Briefing Room on July 9 was to ban or limit non-competition agreements[3], the Order itself: (1) does not contain this language as an objective of the federal agencies’ mission; and (2) does not invalidate current non-compete agreements. Regardless, the statement contained in the Fact Sheet is not the current law, but rather a possible outcome of the initiative. The ball is now in the hands of the assigned federal agencies to determine if – and how – they will conduct their review and make recommendations.
The following steps are recommended for employers who use restrictive covenant agreements in response to the Order:
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Review the company’s program for requiring non-competition agreements or other contracts containing non-compete provisions for employees.
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Consider the necessity and scope of current and future non-competition agreements, taking into account the duration, geographical limitations, and type of jobs where the agreements are used.
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Consider other provisions, such as confidentiality, non-solicitation and non-interference obligations, in a restrictive covenant agreement or employment contract that protect legitimate employer interests were a national ban on non-competes to become statutory law.
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Consider applicable state law that bans or limits the use of non-compete obligations in the workplace.
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Consider incentives for employees to refrain from competing, such as garden leave obligations, during which an individual is not permitted to work for another employer in exchange for payment while on leave.
Despite the latest guidance, no federal agency has specifically banned or limited non-competition agreements yet. Thus, any changes to your current non-compete agreements should be carefully prepared, reviewed, and administered with legal counsel.
[1] FACT SHEET: Executive Order on Promoting Competition in the American Economy, The White House, (July 9, 2021).
[2] Executive Order on Promoting Competition in the American Economy, The White House (July 9, 2021).
[3] See Footnote 1.
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