New Year – New Non-Compete Restrictions?

Before jumping too deep into 2022, it’s important to take a few moments to reflect on 2021’s year’s developments of the law on non-compete agreements (“NCAs”), provide a few thoughts about what could happen in 2022, and offer a few pieces of advice.

In July 2021, President Biden signed an Executive Order entitled “Promoting Competition in the American Economy.” The Order does not in itself change the law, but it encourages the Federal Trade Commission (“FTC”) to take steps to limit or ban NCAs in the country, which if adopted could have a significant impact across the county. The FTC has begun reviewing the Order and is currently considering what action, if any, to take. Many experts expect the FTC to make its decision this year.

Congress also attempted to act on NCAs in 2021. In recent years, in what has become a pattern for new congressional sessions, both the House of Representatives and the Senate introduced the Workforce Mobility Act. The Workforce Mobility Act, if passed, would have drastically limited the use of NCAs throughout the United States. While the bill did not pass, Congress has shown an appetite for federal legislation regarding NCAs. Expect these efforts to continue into the new year as lawmakers continue this push.

State governments have followed the federal government’s lead and taken steps to limit or ban NCAs. In 2021, dozens of states reduced or eliminated the protections employers enjoy from NCAs. For example, Illinois enacted a law that bans NCAs for employees earning less than $75,000 per year and non-solicitation agreements for employees earning less than $45,000 per year. Other states, such as Oregon and Nevada, passed laws to substantially limit the permissible scope of NCAs, while the District of Columbia banned NCAs in virtually all circumstances.

Many other states introduced bills that would limit or eliminate NCAs. For example, New Jersey introduced a bill  that would eliminate NCAs for a large part of the working population; limit permissible NCAs, both geographically and temporally; and, most importantly, require employees to be paid in full for the duration of the NCA.

On the other hand, Pennsylvania took a different approach and singled out one category of workers—physicians—and proposed that NCAs not be enforceable against them. While some of their efforts were unsuccessful this year, expect many states to continue pushing their NCA-related legislation forward in 202.

At this point, it’s impossible to say to what extent these efforts will be successful. Still, we can say the efforts to chip away at the protections provided by NCAs will undoubtedly continue. Until then, any employer that uses NCAs, or other restrictive agreements (e.g., non-solicitation or non-disclosure agreements), should act now to ensure they have enforceable agreements in place before any changes to the law take effect. Be proactive and take steps now; it is always better to be ahead of the curve than behind it.