On July 9, 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy. The EO outlines a need to create a fair, open, and competitive marketplace. A lot of the areas identified are non-employment related areas such as cable/internet providers and costs, farming, and government contracts. The EO does, however, contain a paragraph addressing non-compete agreements. Specifically, the EO states that “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.” Obviously, this does not require the FTC make any new rules regarding non-competes nor does the EO indicate what changes President Biden would like to see, but it does reaffirm one of Biden’s campaign promises of eliminating non-compete agreements.
While we wait to see what, if anything, the FTC proposes in terms of changes to non-compete agreements, there has definitely been a shift away from non-compete agreements in several states. California, Oklahoma, and North Dakota will not enforce non-compete agreements against employees. Several states limit non-competes to only high level employees or high wage earners. In Texas, certain consideration is required (i.e, access to trade secrets) to create an enforceable non-compete agreement, but there are no limitations on what level employee you can restrict from working for a competitor. The expense of enforcing a non-compete can be great and failure to enforce non-compete agreements can make future enforcement murky. This puts employers who utilize non-competes in the position of needing to enforce every non-compete even when it’s a low-level employee or a poor performer that the employer does not care about working for a competitor.
While non-compete agreements can be difficult to enforce, almost all states will allow the enforcement of non-solicitation agreements. Restricting former employees from contacting customers and clients that they learned of through their employment can prevent the loss of business, but still allows the employee to earn a living and fairly compete. At a minimum, employers should be utilizing confidentiality agreements and specifically identifying what information the employer considers confidential and/or trade secret (i.e., customer lists, employee lists, marketing data, etc.). Regardless of what this current administration does as it relates to non-compete agreements, there will still be plenty of contractual measures employers can take to protect their businesses.