by Bob Dunlevey of Taft/Law
President Biden has issued a highly unusual and sweeping Executive Order requiring 72 initiatives by more than a dozen federal agencies – all for the announced purpose of enhancing competition in America’s economy. It also asserts it will enhance the wages of workers. Among the 72 initiatives, it calls for:
Restricting the use of covenants-not-to-compete in employment agreements
Eliminating unnecessary occupational licensing requirements
Preventing employers from sharing wage and benefit information in a manner that suppresses wages or benefits of employees
Limiting corporate consolidations and further scrutinizing current mergers
Through the EO, the Administration is directing government agencies, beyond those responsible for anti-trust enforcement, to pursue the regulation of industries where there is a perception of market concentration. The EO directs the Chair of the Federal Trade Commission to consider “exercis[ing] the FTC’s statutory rule-making authority to curtail the unfair use of employee non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” The EO focuses on contractual provisions in employment agreements that restrict the ability of an employee to move from one job to another for a certain period of time. Many employers rely on such agreements to protect legitimate business interests, including the confidentiality of trade secrets as well as investment in employee training and development.
Critics of the FTC creating restrictions on the use of non-compete covenants claim this is an unprecedented federalization of state employment matters and point out that approximately 20% of the workforce currently are subject to such agreements in order to protect legitimate employer interests. Apparently, President Biden is attempting to do through an Executive Order mandate to the FTC what may not be achievable through proposed legislation.
Employers should immediately consider:
It is unlikely that the EO will affect agreements that are already in place. Any new rules probably would be prospective. Employers that have employees who are not currently subject to non-compete agreements might want to consider whether to implement some form of contractual protections for their interests in the near future — the sooner the better.
The EO gives no guidance as to what constitutes an “unfair” use of a non-compete clause. Most states already have laws addressing such. In those states which allow non-compete clauses, the key is to determine whether the employer has a “protectable interest” and whether the restrictions are narrowly crafted in terms of language, geography, and time to protect just that interest. Before any new rules are promulgated, employers should start reviewing the scope of their existing agreements to determine whether the scope of the restrictions might be considered too broad and develop a strategy to narrow the scope of the restrictions while still protecting legitimate concerns.
The EO also mentions “other clauses or agreements” that limit employee mobility. Could this include non-solicitation of certain customers and employees or agreements that require an employee to repay tuition reimbursement or a bonus if he or she leaves the current employer within a particular time frame? Consider whether these types of agreements are sufficient to address concerns about protectable interests and possibly use them in place of a non-compete agreement in the future. Strengthen your policies addressing confidentiality of proprietary and trade secret information now.
Any broad attempt to ban non-compete agreements by agency rulemaking would likely be challenged vigorously by business advocacy groups in the federal courts. So, stay alert for developments including agency rulemaking.
Some claim that the effect of the EO will be further consolidation of federal power over such things such as the agriculture, airlines, banking, broadband, health, and technology industries. Others hail the EO as an effective first step to creating a more equitable business environment for Main Street. The EO has some semblance to President Obama’s “Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy” program, which stalled with the election of President Trump.
For further information or assistance with your non-compete agreements and their enforcement, contact Bob Dunlevey, Board Certified Specialist in Labor and Employment Law, at (937) 641-1743 at Taft/Law.