Last week, President Joe Biden signed an Executive Order aimed at promoting competition in the American economy. In a press release touting the Executive Order, the White House stated that President Biden intended to build on recent economic growth in order to “promote competition in the American economy, which will lower prices for families, increase wages for workers, and promote innovation and event faster economic growth.”
Continued Governmental Opposition to Non-Competes
The Executive Order includes 72 initiatives designed to foster competition in several areas of the economy including labor markets, healthcare, transportation, agriculture and technology. As explained in greater detail by our colleagues in an earlier advisory, the Executive Order raises antitrust issues in a number of these industries. As relates to specifically to labor markets, the White House’s press release cited an article that concluded industry consolidation has resulted in a 17% decrease in advertised wages. The White House went on to note that “tens of millions” of workers “are required to sign non-compete agreements … which make it harder for them to switch to better-paying jobs.” As discussed in our recent webinar concerning no-poach and non-compete agreements, and noted in our recent summary of a Pennsylvania Supreme Court decision regarding no-hire agreements, state and federal agencies have become more interested in – and opposed to – employers’ use of restrictive covenants in employment agreements. Friday’s Executive Order suggests that trend is likely to continue.
FTC Has Authority
The precise ramifications of this Executive Order are unclear, particularly given breadth of the associated directive. More specifically, the Executive Order encourages the Federal Trade Commission (FTC) “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” However, the press release states that the FTC has been encouraged to “ban or limit non-compete agreements” and to “strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits[.]” Read together, this suggests the FTC will have broad authority in seeking to limit the use of non-compete provisions.
Close Review of Non-Compete and No-Poach Agreements
As explained in our webinar, governmental attention and opposing to non-compete provisions will present a challenge for employers looking to protect their investments, technology, products and customer relationships. It is unclear at this juncture what to expect from the FTC but employers should be mindful that non-compete and no-hire provisions are likely to come under additional scrutiny in the future.
Specific Requirements that are Industry and State Specific
Employers must be able to show that their restrictive covenants are to protect their legitimate business interests and not to stifle fair competition. In order to defend against scrutiny and show legitimacy of their agreements, employers should be mindful of the potential limitations applicable to their non-competes, including the various factors the applicable jurisdiction(s) may find significant. These limitations include the geographic scope, duration, salary thresholds and types of positions to which employers are applying such provisions. Otherwise, they may be found to be unenforceable.
Employers should attempt to draft their non-compete provisions as narrowly as possible given the interests they are seeking to protect. In addition, employers may consider alternatives, such as non-disclosure agreements and in some instances, liquidated damages provisions, where possible. Such proactive measures will likely aid in the protection of the employer’s interests as well as the potential that the provisions are found to be enforceable.
The Executive Order will lead to multiple agencies seeking proposals and comments on how to achieve the President’s stated goals. Buchanan’s Federal Government Relations Team is actively monitoring the political landscape of this issue within the Administration, specific agencies, and Congress and stands available to assist clients in advocating their interests throughout Washington, D.C.