August 2021 Business Litigation Update

White House Issues Executive Order Aimed at Limiting
Non-Compete Agreements

Order Likely to Face Legal Challenges From Business

President Biden recently issued an Executive Order, “Promoting Competition in the American Economy,” asking the FTC to, among other things, limit or ban the use of non-competes (and other agreements) that restrict worker mobility.  It is estimated that over 36 million U.S. workers are affected by non-competes, and this Executive Order is designed to create a more “open and competitive economy, which creates more high-quality jobs and the economic freedom to switch jobs or negotiate a higher wage.”

Three states, California, North Dakota and Oklahoma, already ban the use of non-competes, and several others limit their use for lower wage workers.  To-date, however, the federal government has not sought to govern the use of non-competes on a national scale.  The Executive Order creates a “White House Competition Council” to address unfair competition impacting the economy and to work with the FTC to stop unfair enforcement of non-competes.

Labor and employment experts expect that the Executive Order will be challenged by businesses who argue that non-competes are essential to protect a company’s trade secrets and proprietary information.  Because of this potential  challenge, it is expected that the FTC will ultimately adopt a narrower approach, such as only banning non-competes for lower wage workers.

While it is unclear what actions the FTC will ultimately take, businesses utilizing non-compete agreements can take some proactive steps now:

1. Conduct a review of all non-compete and other similar employment agreements to ensure you are complying with current state level laws, particularly for those businesses operating in multiple locations.
2. When conducting your review, flag any elements that could present an issue should a federal law go into effect.  For example, it will be important to look specifically at non-competes for lower wage workers or any other agreements or clauses that could be deemed unfair or too restrictive.
3. Continue to monitor developments related to the Executive Order and any actions taken by the FTC, and be ready to amend or update agreements as any new laws are implemented.

The bottom line: This is a developing matter and not likely to be finalized immediately; however, the Biden Administration has indicated it is committed to improving U.S. business competition, so any company that uses non-compete agreements needs to watch this issue closely.  Stay tuned for updates if and when the FTC attempts to limit non-competes.