On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy While the Order is aspirational and a policy road map, it does not operate to ban, or otherwise restrict in any way, the enforcement of employee noncompete agreements.
In the week that followed, many news outlets published articles heralding a national demise of employee noncompete agreements. But President Biden’s Order did not effectuate any change to the laws regarding the enforceability of covenants not to compete. The Order is, rather, a wide-sweeping directive to various federal agencies advising of the policy-making goals of the Biden Administration.
As the White House’s Fact Sheet describing the Order explained the July 9 Order “includes 72 initiatives by more than a dozen federal agencies” intended to promote competition and constrain big corporations from consolidating power in a broad array of business sectors ranging from airlines to chicken farmers. The topic of noncompete agreements is but one of myriads of topics addressed in the Order, and the Order is devoid of details on how or to what extent noncompete laws should be reformed. In the Order, President Biden simply encourages the Federal Trade Commission (one of the federal agencies responsible for enforcing anti-trust laws) to “curtail” the “unfair use” of noncompete agreements, stating: “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 curtail the unfair use of non-compete clauses or other clauses or agreements that may unfairly limit worker mobility.”
It remains to be seen what, if any, action the FTC takes in response to the Order. If the FTC does take up the invitation to act in this area, the agency’s rulemaking process is typically slow, with any rules it passes to bar or constrain noncompete agreements likely facing numerous legal challenges – especially since there is no body of federal noncompete law because this area has been the province of state law.
So, have noncompetes been banned in any material way? In short, the answer is, No. The President has not implemented any ban on employer use of noncompete agreements, or their close cousin, non-solicitation agreements that prohibit former employees from soliciting or doing business with a company’s customers or other employees. Well-crafted noncompete and non-solicitation agreements can help protect a company’s trade secrets and other confidential information, investment in employee training, and business goodwill. Texas has codified the enforceability of covenants not to compete at Texas Business and Commerce Code section 15.50, which generally allows for the enforcement of noncompete agreements to the extent they contain reasonable limitations as to time, geographical area, and scope of activity to be restrained. The July 9 Executive Order does not alter the Texas legal landscape in this area.
For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com.