In his July 9, 2021, executive order, US President Joseph R. Biden established 72 initiatives designed to promote competition in the national economy, lower consumer prices, increase wages, and promote innovation and economic growth. Among other areas, the order took direct aim at non-compete agreements. The fact sheet released along with the order said that millions of Americans are currently required to sign such agreements as a condition of employment, making it difficult for such workers to subsequently move to better-paying jobs.
Although the fact sheet also stated that a primary goal of the order was to “ban or limit non-compete agreements,” the text of the order is far from a strict or clear directive. Rather, the order simply encourages the Federal Trade Commission to use its rulemaking authority to “curtail the unfair use” of non-competes and similar clauses or agreements that might — again “unfairly” — limit worker mobility.
The president’s order falls short of establishing an immediate effect on the use of non-compete agreements. However, it is in line with similar, state-based efforts to limit or eliminate non-competes. California, North Dakota and Oklahoma already ban such agreements in large part. Almost a dozen additional states have prohibitions that are less broad and are generally focused on certain categories of workers, including (in Virginia) “low wage” employees.
At the federal level, and outside of the president’s executive order, there is some bipartisan legislative momentum for prohibiting or reducing the use of non-compete agreements, including the Workforce Mobility Act reintroduced into the US Senate and House of Representatives on February 25, 2021, by Senators Chris Murphy (D-CT) and Todd Young (R-IN) and Representative Scott Peters (D-CA). On July 21, 2021, Senators Maggie Hassan (D-NH) and Marco Rubio (R-FL) reintroduced the Freedom to Compete Act.
Clearly, non-compete law is in flux. Although the extent of such changes is uncertain, employers should review their existing non-compete agreements — and prepare to amend or limit their use of future agreements — to ensure compliance with current and potential federal and state laws.