In July 2021, President Biden signed an Executive Order aiming to limit the use of restrictive covenants in employment relationships. Opening with the premise that “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,” Biden charged the Federal Trade Commission to investigate non-competition agreements. Specifically, the Executive Order encouraged the Chair of the FTC 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.”
The FTC has not moved quickly on this issue. The delay is likely because the Commission is not yet fully staffed. The Administration has nominated Alvaro Bedoya to be a Federal Trade Commissioner, but Congress has not yet confirmed the nomination. Nevertheless, the FTC has begun the informal fact gathering process by holding a series of workshops and panels titled “Making Competition Work: Promoting Competition in Labor Markets.” Until the FTC releases its proposed rule and opens the floor to public comment, the effect of the Executive Order remains speculative but, most believe that some federal reforms regarding restrictive covenants are coming in 2022. The breadth of those reforms leaves many open questions. Will the FTC seek to ban non-compete agreements entirely? Will they limit their reforms to non-competes as applied to low-wage earners or will they also target such agreements for C-suite employees? How will any new restrictions be enforced? Will the FTC similarly target non-solicitation clauses?
Congress is also eyeing restrictive covenants. Marco Rubio (R-FL) and Maggie Hassan (D-NH introduced the “Freedom to Compete Act.” This Act aims to prohibit an employer from entering into, extending, or renewing a non-compete agreement with an employee who is classified as non-exempt under the Fair Labor Standards Act overtime provisions. The bill has not yet gained any momentum but is another indication that changes to the non-compete arena are likely coming.
Even with the move to dampen the use of non-competition agreements, trade secrets and confidential and proprietary information are still protectable assets. Employers should consider updating existing agreements to make sure the use and disclosure of this type of information is restricted.
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