President Biden recently issued an Executive Order “Promoting Competition in the American Economy”. The EO does not ban or limit the use of non-compete agreements. But, it does direct the Federal Trade Commission (FTC) to pursue a rulemaking process that could ban or severely restrict the use of noncompete agreements as a matter of federal law.
You may recall that in 2020 the FTC held public workshops regarding the use of noncompete agreements. Although several meetings were held and papers were written, no action was taken to enact a specific rule or statue.
Unfortunately, it appears as if the challenge to an employer’s ability to use voluntary non-compete agreements may be under a more direct and realistic threat this time. President Biden has been harshly critical of noncompete agreements and has taken the position that they should be banned, or at least heavily restricted. For example, President Biden’s campaign website declared, “As president, Biden will work with Congress to eliminate all non-compete 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.”
President Biden’s EO establishes a White House Competition Council to coordinate, promote and advance seventy-two (72) different initiatives to “tackle some of the most pressing competition problems across our economy.” The Chair of the FTC will be part of the Council and is specifically “encouraged to consider work 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.”
It is far from assured that either the White House or the FTC will have the authority to effectively issue regulations curtailing the use of non-competes. Any action that they take will almost certainly be the subject of legal challenge. However, it appears certain that they are going to try.