Recently, President Joe Biden issued a sweeping executive order aimed at promoting competition and removing barriers to economic growth. In the order, he encouraged the Federal Trade Commission (FTC) to limit non-compete agreements or ban them altogether, at least for lower-wage workers.
Non-compete agreements restrict a worker’s ability to accept a position with a competing firm for a specified period of time. They are often used to protect proprietary information such as trade secrets.
According to the executive order’s fact sheet, between 36 million and 60 million workers are affected by non-compete agreements, which are required by about half of private-sector businesses.
Although reining in the use of non-competes was a campaign promise for Biden, it is not clear exactly what the FTC might do to regulate non-competes. Traditionally, the states have regulated the use of non-compete agreements.
For example, in 2019, Maryland banned non-compete agreements for workers earning less than $15 an hour or $31,200 a year.
The following year, Virginia banned new non-competes for low-wage workers, as well, who are defined as having average weekly wages for the previous 52 weeks that are less than the average weekly wage in the Commonwealth. Non-competes are also banned for students, interns, apprentices and trainees, along with lower-wage independent contractors.
Effective in March of this year, the District of Columbia banned most new private-sector non-competes altogether, although preexisting agreements are still in effect.
Where non-competes are still allowed, courts have generally ruled that they must be reasonable in scope, geographic reach and duration. This reasonableness often depends on the level of the employee and the extent to which they have real access to proprietary information. Unreasonably restrictive non-competes often won’t be enforced by the courts.
What might the FTC actually do?
Biden’s FTC chair has argued for federal rules to target anti-competitive practices including non-competes. Nevertheless, it would be a significant departure for the FTC to attempt to regulate these agreements. Moreover, it is open to question whether the FTC actually has the authority to ban non-competes. Any action the agency takes is almost certain to be challenged in court.
One thing the FTC might do, according to NPR, is to enforce state-level bans that are already in place but which some employers are ignoring. While a number of states have limited the scope and reach of non-competes, many large companies simply include them in their employment contracts anyway.
Does your company use non-competes when you hire new people? As with any contract, it is essential to ensure that your non-compete agreement is enforceable, if necessary. Talk to an experienced employment law attorney about your specific agreement.