Biden Issues Executive Order Targeting Non-Competes: Steps Employers Can Take Now

On Friday, July 9, 2021, President Joe Biden issued an Executive Order "promoting competition in the American economy." Although the fact sheet accompanying the Executive Order states that the order will "make it easier to change jobs and help raise wages by banning or limiting non-compete agreements," the Executive Order itself addresses non-compete agreements in only the below two clauses:

• In explaining the policy goals, the Executive Order states, "Powerful companies require workers to sign non-compete agreements that restrict their ability to change jobs."
• In the section on agency responsibilities, the Executive Order states, "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."

Notably, the Executive Order is limited to "the unfair use of non-compete clauses" as well as "other clauses or agreements that may unfairly limit worker mobility."
 
The details of this Executive Order will be worked out through agency rulemaking, a process that can take years, and would almost certainly be the subject of legal challenges. The rulemaking process includes notifying the public of the proposed rules, allowing the public a comment period, drafting final rules, and choosing an effective date. Nonetheless, there are steps employers can take now to protect their legitimate business interests should a federal limitation or ban issue in the future.
 
Steps Employers Can Take Now

• Ensure that you are adequately protecting your trade secrets through practical, technical, and contractual measures.
• Review your current non-compete agreements to determine their fairness factor.
  Although the Executive Order does not provide additional guidance on when a non-compete agreement is "unfair," any hypothetical limit on non-compete agreements will likely depend on:
  • the duration and geographical scope of the restriction,
  • the wage/salary of the affected employee,
  • the executive level of the affected employee,
  • the employee’s access to confidential information and trade secrets, and
  • public interest considerations. 

Note that an increasing number of states are restricting the use of non-compete agreements, so make sure that your agreements comply with the laws of the applicable states.

• Ensure your employee contracts include a severability clause.
• Apply the same steps to any other agreements limiting past and present employee activities, such as employee non-solicitation agreements. As noted above, the Executive Order is not limited to non-compete clauses, but calls out "agreements that may unfairly limit worker mobility."

We Can Help
If you have questions about how to protect your company’s legitimate business interests in the midst of this changing regulatory landscape, please contact Maslon's employment and non-compete attorneys.