Employers and employees alike should be aware that new standards concerning non-compete agreements and other restrictive covenants are on the horizon. On July 9, 2021, President Biden signed a broad executive order called “Promoting Competition in the American Economy,” aimed at expanding worker rights, including minimizing restrictions on job switching.
The Order directs some federal departments and agencies to provide input on non-competitive practices that impact employees in various industries, including technology, telecommunications, transportation, and financial services. More specifically, the President’s Order directs the Federal Trade Commission to address agreements that may limit worker mobility from job to job, and to “curtail the unfair sue of non-compete clauses and other clauses that may unfairly limit worker mobility.”
Overall, the Biden Administration is seeking to promote competition across the American economy, including by removing or at least reducing barriers to workers who want to change jobs. They contend that non-competes drive down wages by making it harder for workers to leave their current employer and take better paying jobs. On the other hand, businesses argue that such restrictions are necessary to protect valuable company assets such as trade secrets and customer lists.
In addition to non-compete agreements, the Order also covers “other clauses or agreements,” suggesting that eventually other forms of restrictive covenants, such as non-solicitation agreements, will become less common. Since the Order refers only to “unfair” non-compete clauses, it is highly unlikely that restrictive covenants will be banned completely, as well as expected challenges by companies that do not want their agreements watered down. Also, there is no set timetable regarding when the FTC and other agencies will be required to take action.
To prepare for these impending changes to the employment arena, employers should consult with outside counsel. They should examine the agreements which are in place and determine how best to modify restrictive covenants to make them more employee-friendly while also protecting company interests. At the same time, businesses should look at alternative ways to accomplish their objectives to protect company information and maximize their competitive advantages. For example, counsel may advise their clients to have agreements that put greater emphasis on employees’ non-disclosure obligations rather than non-compete provisions.
Similarly, employees who are asked to sign any such agreements should consult with counsel before committing to restrictions that may hamper their future ability to take other jobs and/or to retain the right to call on their existing customers or clients. All too often workers do not realize that many agreements they are asked to sign when first hired can have potentially adverse consequences which follow them to their next job, and they often need legal representation before formally accepting a new position.
On balance, this recent Order is good news for workers, and a possible burden on employers. Both sides should be prepared well before the details are hammered out.