Biden EO Calls for Limit or Ban on Noncompete Agreements
Author: Robert S. Teachout, XpertHR Legal Editor
July 12, 2021
President Joe Biden issued an Executive Order on July 9 encouraging the Federal Trade Commission (FTC) to use its rulemaking authority to ban or limit the use of unfair noncompete agreements.
In announcing the order, the White House issued a fact sheet stating that approximately half of private sector businesses require at least some employees to enter noncompete agreements, affecting some 36 to 60 million workers many of whom are low-wage workers. The order is intended to make it easier for these employees to change jobs and obtain higher wages.
The order asks the FTC to consider rules that would:
- Ban or limit noncompete agreements that may limit employee mobility;
- Ban unnecessary occupational licensing restrictions that impede economic mobility; and
- Revise the agency's 2016 Antitrust Guidance for HR Professionals.
The order is a step towards keeping Biden's campaign promise to "work with Congress to eliminate all noncompete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets, and outright ban all no-poaching agreements."
However, the order does not instruct the FTC outright to issue rules. Instead, it calls on the agency to review employer overuse of noncompete agreements and consider steps, including rulemaking, to resolve the problems.
This would not be the FTC's first effort to examine the issue. In January 2020, the agency held several public workshops to discuss a variety of proposals regarding the use of noncompete agreements, but did not take any action to enact a rule. Biden's Executive Order may prompt the agency to move forward in that direction.
Rather than issuing an outright ban on noncompete agreements, the FTC may consider following states' lead in noncompete agreements by targeting restrictions for certain workers, but not for all.
While efforts to enact what would be the first federal rule regarding noncompete agreements are only in the early stages, employers should act now to prepare. Attorney Eric Meyer, a partner with Fisher Broyles and author of The Employer Handbook blog, said that employers should not require every employee to sign a noncompete agreement with the idea of only selectively enforcing some of them later. "Instead," said Meyer, "you should only have those employees sign one where there is a legitimate business reason."
In addition to noncompete agreements, the Executive Order also calls for increasing whistleblower protections against retaliation and includes more than 70 other proposals intended to promote economic competition.