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WORKSPAN DAILY |

Biden’s Executive Order Could Extinguish Non-Compete Agreements


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Earlier this month, President Joe Biden issued an executive order that aimed to promote more competition in the United States economy. The all-encompassing order contained various initiatives, including a call for the Department of Justice (DOJ) and Federal Trade Commission (FTC) to focus antitrust enforcement on labor markets.

However, the key initiative focused on empowering the FTC to enhance efforts to limit or ban restrictions on worker mobility — namely, eliminating employers’ use of “non-compete” clauses in employment contracts. This would prove to be an unprecedented move by the federal government, as the regulation of non-compete agreements has been left to the states in the past. Nevada, New Jersey and Oregon are among the states that have recently passed legislation limiting the enforcement of non-competes by setting minimum compensation levels and time limits on the period of restriction.


Don Schroeder, partner in Foley & Lardner LLP’s labor and employment practice group, said while the executive order clearly emboldens the FTC to regulate non-competes, it’s unclear to what extent they would be able to do so.

“There is a question on jurisdictional authority to actually delve into the issue of non-competes in the private sector,” Schroeder said. “Depending on what kind of guidance they issue, I suspect it will be subjected to a round of litigation by various business groups.”

Schroeder said he doesn’t anticipate any formal ruling on the matter of non-competes to come to fruition until early 2022. And whatever guidance the FTC provides is likely to stop short of a widespread ban on non-compete agreements. Some potential avenues the FTC could explore involve applying the rule to non-exempt employees, creating a salary threshold where one would be applicable, or banning them in certain industries.

“I think you’ll see some guidance issued with respect to limits on the applicability of non-competes in various industries and various categories of employees,” Schroeder said. “I would be surprised to see a radical move by the FTC that imposes an all-encompassing ban on non-competes.”

This isn’t the first time the federal government has aspired to restrict the use of non-competes. Beginning in 2015, various bills have been introduced in the House of Representatives and the Senate; some of these bills had bi-partisan support or Republican sponsorship. For example, in a February 2021 bill called the Workforce Mobility Act, legislators sought to ban the use of all non-competes except in the context of the dissolution of a partnership or the sale of a business.  In January 2019, more narrowly crafted legislation — the Freedom to Compete Act — sought to prohibit the use of non-competes only with regard to non-exempt employees.

Considering the emphasis placed on worker mobility in Biden’s executive order, Schroeder said it would be prudent for employers to review their existing non-compete clauses if applicable. In some cases, he noted, employers might determine it no longer makes business sense to deploy such an agreement. However, if that isn’t the case, there are still workarounds, he said.

“Perhaps you can implement a non-solicitation provision on steroids,” Schroeder said. “One that from a customer and employee standpoint imposes so many restrictions that are very detailed and focused on actual and prospective customers that you’re getting almost the same level of protection as a non-compete.”

Schroeder added that this could also assist some employers in avoiding the rigors of complying with state statutes, while eschewing any federal legislation that could be coming down the pike.

“It’s a good inflection point,” Schroeder said, “to look at the documents that are in place of restrictive covenants to make sure you understand why you impose the various restrictions that you do and whether or not today those restrictions are necessary and legitimate and reasonable.”

About the Author

 Brett Christie is the managing editor of Workspan Daily.


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