On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy, which encourages the Federal Trade Commission (“FTC”) to employ its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Executive Order, Section 5(g). While the language in the Executive Order refers to the “unfair” use of non-compete clauses, the Administration’s explanatory statement makes clear that “the President encourages the FTC to ban or limit non-compete agreements” altogether.
A comprehensive rule governing non-competes would be an unprecedented move by the federal government. Historically, the regulation of non-compete agreements has been left to the states, many of which have recently been busy with legislation of their own. Recent state legislation has focused, among other issues, on minimum compensation requirements for such agreements to be enforceable against employees, as well as imposing time limitations on such restrictions. See e.g., recent posts on legislative efforts in New Jersey, Oregon, and Nevada. The Executive Order does not offer any details on whether these are the types of limitations President Biden would like the FTC to consider.
It seems unlikely that the FTC will issue a complete ban on non-compete agreements. Any attempt to impose such a ban would be met by strong opposition from the business community. Non-competes are viewed as vital by many employers seeking to protect their trade secrets and goodwill, among other legitimate business interests.
If the FTC is “encouraged” by President Biden’s Executive Order, the administrative rulemaking process likely will take several months or even years. So, for now, employers should continue to review their non-compete agreements for compliance with state law, and we will keep you updated on any future developments on the federal side.