President Biden Urges FTC to Act Against Non-Competes

On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy (the “Order”), which directs 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,” in order to help promote competition and expand the economy. While the language in the Order refers to the “unfair” use of non-compete clauses, the associated Fact Sheet makes clear that “the President encourages the FTC to ban or limit non-compete agreements” altogether.

When announcing the new Order, the White House Press Secretary made the following statement:

[R]oughly half of private sector businesses require at least some employees to enter [sic] noncompete agreements, affecting over 30 million people. This affects construction workers, hotel workers, many blue-collar jobs, not just high level executives[.]

The Biden administration apparently views this Order as a means of establishing a government-wide approach to promote competition across the nation. The administration believes banning or curtailing the use of non-competes nationwide will facilitate “job fluidity” and increase competition among American businesses.

As a result, the Order asks the FTC to adopt rules which would drastically cut the use of non-compete agreements nationwide, which would be a drastic departure from non-compete legislation in the past.  Historically, the regulation of non-compete agreements has been left to the states. Currently, only three states forbid the use of non-compete clauses in employment agreements: California, North Dakota and Oklahoma. Recently, multiple states – including Massachusetts, Oregon, Nevada, and Illinois, – have put tough restrictions on the use and enforcement of non-compete agreements.

However, this is not the first time the Federal Government has taken aim at limiting the use of non-competition agreements nationwide.  Specifically, in March 2021, the Federal Workforce Mobility Act (“FWMA”) was re-introduced in Congress in for the third time. The FWMA is a bi-partisan effort to create federal legislation to restrict the use of non-compete agreements between employees and employers.  If enacted, the FWMA would create a federal scheme wherever interstate commerce exists to limit the use of non-competes and prevent enforcement of non-competes against most American employees.

It seems unlikely that the FTC will issue a complete ban on non-compete agreements.  Any attempt to impose such a ban would be met by strong opposition from the business community as non-competes are viewed as vital by many employers seeking to protect their trade secrets and goodwill, among other legitimate business interests.  Additionally, it’s not exactly clear what authority the FTC has to create or implement a nationwide non-compete ban as the FTC generally enforces federal statutes passed by Congress and signed into law by the President, although it may also issue regulations supporting acts of Congress.

On the other hand, even if the Biden Administration pushes the FTC, the administrative rulemaking process likely will take several months or even years.  So, for now, employers should continue to review their non-compete agreements for compliance with state law and check back here for any updates.