President Biden is issuing an executive order today to impose significant federal limitations on non-compete agreements.
The Executive Order on Promoting Competition in the American Economy, part of the Administration’s Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions, calls 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.”
The Administration argues that these clauses and agreements “hinder the ability of employees to seek higher wages, better benefits, and working conditions by changing employers.”
A federal, nationwide non-compete ban will have major implications for private and public businesses, and it remains to be seen if and how it will allow for protection of sensitive information that isn’t within the “narrowly defined category of trade secrets,” like prospective client lists, competitive strategies, and other non-proprietary data.
It’s also unclear whether such a ban in within the authority of the Federal Trade Commission (FTC), which the President tasked with enacting. It’s likely that it will face legal challenges by businesses and organizations.
NON-COMPETES BY STATE
Until now, regulation of non-compete agreements had been left to the states.
Washington, D.C., passed a noncompete ban in January, following California, which has long banned them, and Washington, which severely restricts them with requirements like paying a terminated employee’s salary during the non-compete period.
Other states, like North Dakota and Oklahoma, only allow non-competes in very narrow circumstances, while states like Maine and New Hampshire recently passed bans for low-wage employees.
National non-compete bans have been proposed in the past, most recently a bipartisan bill introduced in 2019, but have never been able to pass.
Given the state of the workforce due to the COVID-19 pandemic and a Senate split down the middle—with Democrats usually supporting measures against restrictive agreements and Republicans generally opposing such measures—the prospects of such a bill passing are slim.
The executive order allows the administration to circumvent the legislature, delivering on a campaign promise to curtail anticompetition measures such as non-compete agreements.
The sweeping Order comprises 72 initiatives by more than a dozen federal agencies, promising to “tackle some of the most pressing competition problems across our economy.”