Biden Issues EO on Non-Compete Clauses

On Friday, July 9, 2021, President Biden issued an Executive Order that asks the Federal Trade Commission to consider enacting a rule “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility."

In  a corresponding press release, the White House claimed that roughly half of private-sector businesses require at least some of their employees to enter into non-compete agreements, impacting somewhere between 36 to 60 million American workers, and that these non-competes suppress wages and inhibit worker mobility by making “it harder for them to switch to better-paying options.” 

While the Executive Order does not specify what type of rule President Biden would like the FTC to enact, the press release confirmed that President Biden “[e]ncourages the FTC to ban or limit non-compete agreements.”

It is unclear when the FTC will begin to evaluate any proposed rules banning or limiting non-compete agreements, much less when any rule would go into effect.  The enforceability of non-compete agreements has historically been left to the courts and state legislatures. 

Throughout the last decade, numerous states have enacted legislation outright prohibiting the use of non-competes or significantly restricting the circumstances in which they can be used. 

There have also been several high-profile cases where companies have been scrutinized for requiring non-competes for low-wage workers (see Jimmy John’s former non-competes with its “sandwich artists”).  President Biden’s Executive Order follows this trend at the federal level.

Contractors should generally avoid blanket non-compete agreements with all employees. Non-compete agreements are more likely to be enforceable when used in key positions with access to the company’s trade secrets or other business sensitive information. Additionally, non-compete agreements are typically considered enforceable if they: Have reasonable time restrictions (generally less than one year) Are limited to a certain geographic area (specific cities or counties, rather than entire states and are supported by additional compensation.

SMACNA will continue to monitor developments from the FTC related to non-compete agreements.