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Wednesday, July 14, 2021

Biden Moves To Curtail Noncompete Agreements, But They Aren't Illegal (Yet)

 I've had some clients get very excited about the news that President Biden's new executive order seeks to curtail noncompete agreements. And it is exciting. It just isn't a magic wand that made noncompete agreements suddenly disappear. Here's what it says about noncompetes:

Section 1. Policy.

A fair, open, and competitive marketplace has long been a cornerstone of the American economy, while excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers.

The American promise of a broad and sustained prosperity depends on an open and competitive economy. For workers, a competitive marketplace creates more high-quality jobs and the economic freedom to switch jobs or negotiate a higher wage. For small businesses and farmers, it creates more choices among suppliers and major buyers, leading to more take-home income, which they can reinvest in their enterprises. For entrepreneurs, it provides space to experiment, innovate, and pursue the new ideas that have for centuries powered the American economy and improved our quality of life. And for consumers, it means more choices, better service, and lower prices.

Robust competition is critical to preserving America’s role as the world’s leading economy.Consolidation has increased the power of corporate employers, making it harder for workers to bargain for higher wages and better work conditions. Powerful companies require workers to sign non-compete agreements that restrict their ability to change jobs. And, while many occupational licenses are critical to increasing wages for workers and especially workers of color, some overly restrictive occupational licensing requirements can impede workers’ ability to find jobs and to move between States.

. . . 
Sec. 5. Further Agency Responsibilities.

(a) The heads of all agencies shall consider using their authorities to further the policies set forth in section 1 of this order, with particular attention to:

(i) the influence of any of their respective regulations, particularly any licensing regulations, on concentration and competition in the industries under their jurisdiction; and(f) To better protect workers from wage collusion, the Attorney General and the Chair of the FTC are encouraged to consider whether to revise the Antitrust Guidance for Human Resource Professionals of October 2016.

. . .

(g) 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.

As you can see, the President is asking the FTC and other agencies to look into curtailing the use of noncompete and other anti-competitive agreements and practices. But he didn't make them disappear with the stroke of a pen. First, there will be new agency regulations. Then there will be litigation, because noncompetes are generally governed by state law, which doesn't just go away. So, for now, assume that your noncompete agreement will be vigorously enforced by your employer and govern yourself accordingly. 

Yes, there are defenses to noncompete agreements. The one thing they are not allowed to be used for is preventing competition (yes, I know that's what they're called and what they're actually being used for, but this would violate antitrust laws). Employers have to have legitimate reasons other than preventing competition, like protecting trade secrets, customer goodwill, specialized training not generally available, etc. if they want to enforce noncompetes. The laws vary by state, so talk to a lawyer in your state if you have questions about a noncompete agreement.

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I appreciate your comments and general questions but this isn't the place to ask confidential legal questions. If you need an employee-side employment lawyer, try http://exchange.nela.org/findalawyer to locate one in your state.