212.627.8100On July 9, 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy. In the Order, which included 72 initiatives targeting various industries and agencies, a competitive marketplace is credited with creating “more high-quality jobs and the economic freedom to switch jobs or negotiate a higher wage” whereas the current marketplace is described as including “[p]owerful companies [that] require workers to sign non-compete agreements that restrict their ability to change jobs.”
Non-compete agreements are employment contract clauses that attempt to ban workers at one company from going to work for, or starting, a competing business within a certain period of time after leaving a job. While establishments with high pay or high levels of education are generally more likely to use noncompete agreements, non-competes have also become increasingly common in workplaces with low pay and requiring minimal credentials. The “Labor Market” section of the Fact Sheet also published by the White House last week indicates that “[r]oughly half of private-sector businesses require at least some employees to enter non-compete agreements, affecting some 36 to 60 million workers.”
The enforceability of non-competes is currently inconsistent across the country. While most states and jurisdictions recognize non-competes, some have banned them (California, North Dakota, Montana, Oklahoma, and Washington D.C.) and others prohibit or limit enforcement for certain types of employees (Maryland, Illinois, Hawaii, New Mexico, New Hampshire, and Texas). The New York City Bar Trade Secrets Committee published a report in February 2021 advocating for the “enactment of a statute to regulate the use of noncompete agreements as applied to lower-salary employees in order to ensure equity and fairness in employment markets.”
Section 5(g) of President Biden’s Executive Order states:
To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged 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 White House Fact Sheet also points out that these actions to ban or limit non-competes “complement the President’s call for Congress to pass the Protecting the Right to Organize (PRO) Act to ensure workers have a free and fair choice to join a union and to collectively bargain. Unions are critical to empowering workers to bargain with their employers for better jobs and to creating an economy that works for everyone.”