In 2021, President Joe Biden signed an Executive order encouraging the Federal Trade Commission (FTC) to minimize or outright ban non-compete agreements. The Order came as an effort to promote competition by reducing the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility. Thus, increasing lower-wage workers’ job prospects and income. 

Typically, non-competes suppress wages, restrain innovation, and prevent entrepreneurs from starting new competitive businesses. As such, workers across industries and varying job levels are affected. Consumers are ultimately harmed as well, namely through experiencing higher prices. Few states  have banned non-compete agreements outright while other states, like Georgia, Massachusetts and Virginia, have laws restricting non-competes for lower-wage employees.

Updates

In response to the President’s Executive Order, the FTC proposed a new rule that would ban employers from imposing non-competes on their workers. The proposed rule could significantly increase wages by billions per year and expand career opportunities for millions of Americans. More, it would prohibit employers from using non-compete clauses, making it illegal for an employer to:

• Enter into or attempt to enter into a non-compete with a worker;
• Maintain a non-compete with a worker; or
• Represent to a worker, under certain circumstances, that the worker is subject to a non-compete.

Employers with active non-competes with an employee must rescind the non-compete and inform their employee(s) that the agreement is no longer valid. The rule, however, would not apply to employment restrictions such as non-disclosure agreements. Still, such employment restrictions could be subject to the proposed rule, if they are broad enough to function as a non-compete.

What should employers do?

Employers should stay abreast of changes surrounding their state’s laws, including state laws where remote employees may reside. Here are a few suggestions to help navigate any changes:

• Use restrictive covenants to protect trade secrets and proprietary information. Keep in mind that states generally disfavor these agreements but will grant their use if:
  • There is a legitimate business interest that needs to be protected; and
  • There is a narrowly tailored agreement protecting that interest.
• If possible in your state, use non-solicitation agreements to prohibit a former employee from soliciting your clients after their employment ends.
• Review your current agreements for necessary revisions. Your processes for protecting confidential information and trade secrets may lack clarification on what the agreements themselves restrict and the employees they apply to.
• Determine whether non-compete agreements are necessary or a non-solicitation agreement is more appropriate. 
• Stay abreast of state and federal changes.

The attorneys at York Bowman Law, LLC can assist with drafting compliant non-compete agreements.