On July 9, 2021, the White House issued an executive order (“EO”) with the stated objective of countering anti-competitive forces throughout the economy. One specific directive is the limitation of non-compete agreements, which include not only restrictive covenants, but also “other clauses or agreements that may unfairly limit worker mobility.” Potentially, this could include customer and employee non-solicitation provisions, which some courts construe in the same manner as employee restrictive covenants. Such agreements today are governed by state laws, which vary significantly state-by-state.
In an accompanying fact sheet, the White House noted that competition in labor markets empowers workers to demand higher wages and greater dignity and respect in the workplace. It further stated that roughly half of private-sector businesses require at least some employees to enter non-compete agreements, affecting some 36 to 60 million workers. President Biden made the following remarks while signing the EO:
[W]e’re going to improve competition for workers. I’ve talked a lot about non-compete agreements — contracts that say you can’t take another job in your field, even if you get a better deal. I made a speech — I was just reminiscing with my staff — back in 2018, at the Brookings Institution, where I talked about the non-compete clauses that were just — I found — to be absolutely ridiculous, but how prevalent they were throughout industries.
Under the EO, the Federal Trade Commission is specifically tasked with using the FTC Act’s rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” The EO further establishes a White House Competition Council, made up of several cabinet members, to coordinate, promote, and advance Federal Government efforts to address overconcentration, monopolization, and unfair competition in or directly affecting the American economy.
What does the EO mean for employers? The details remain to be seen. The FTC (and other federal agencies) have yet to issue proposed rules for public review and comment. As the New York Times noted, the EO’s import ultimately rests on the “ability of regulators to carry out the rules the White House seeks and to write them in ways that survive legal challenges.”
Regardless of the ultimate rulemaking approach, it is safe to assume that employers should be prepared for a shift in bargaining power toward employees when it comes to non-competition agreements. Existing agreements with low-wage employees not privy to confidential information or trade secrets may be found unenforceable. Informed prospective employees may balk at signing restrictive covenant agreements that were previously treated as pro forma. And, it seems likely that this shift will further fuel judicial sentiments against enforcement of non-compete agreements. To adapt, employers should begin to consider a more judicious approach to the use of non-compete covenants, including which employees sign them and the necessary scope of the restrictions.