Of the 72 initiatives outlined in the order, one involves encouraging the Federal Trade Commission FTC) to ban or limit non-competition for workers. Specifically, the order, in pertinent part, 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 order does not appear to affect existing state laws regarding enforceability of non-competition agreements between employers and employees, equity owners in businesses or sellers/buyers of businesses. Nor does the order encourage a blanket prohibition on non-competition agreements. Rather, the order only encourages the FTC to consider “curtail[ing] the unfair use of non-compete clauses or agreements that may unfairly limit worker mobility.” (Emphasis added.)
At this time, the order does not require any modifications to currently existing non-competition agreements. However, it appears that change is on the horizon with respect to the enforceability of non-competition agreements and other agreements that limit worker mobility. While we will not know for certain what those changes, if any, will look like until the FTC completes its rule-making process, a review of state law trends and statements from the FTC Chair may provide guidance.
Recently, many states have restricted the use and enforceability of non-competition agreements in the employment context. These states include Illinois, Louisiana, Maine, Maryland, Massachusetts, Nevada, New Hampshire, Oregon, Rhode Island, Washington and Washington, D.C. Non-competition agreements for employees have been unenforceable or severely restricted for some time in at least California, North Dakota and Oklahoma. In fact, since at least 2019, a coalition of approximately 19 state attorneys general have been urging the FTC to protect workers by issuing a national ban on non-compete agreements in employment contracts. Moreover, President Biden’s newly confirmed FTC chair, Lina Khan, has argued in favor of implementing federal rules relating to non-competition agreements, publicly stating that these agreements “deter workers from switching employers, weakening workers’ credible threat of exit, and diminishing their bargaining power.” If we were to read tea leaves here, we can expect to see, at a minimum, non-competition agreements that restrict lower-wage employees to be rendered unenforceable or substantially curtailed.
Given the above, now is a good time to review your existing non-competition agreements, and for any future employment or other agreements, to consider potentially bolstering non-solicitation and confidentiality provisions.
Author Lisa Lori is a Partner in the labor & employement practice group and the litigation department at Klehr Harrison.