Administration Non-Compete Proposal

July 28, 2021

On July 9, President Joe Biden issued an Executive Order (EO), Promoting Competition in the American Economy which encouraged the Federal Trade Commission (FTC) to ban or limit the use of non-compete agreements — including those used by private companies — as well as the use of “unnecessary occupational licensing restrictions that impede economic mobility,” according to a White House Fact Sheet.

The EO also encourages the FTC and the U.S. Department of Justice to strengthen antitrust guidance in order to “prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another.”

The EO and accompanying Fact Sheet do not change current non-compete law, and do not nullify current non-compete agreements. Instead, they are policy goals and ambitions of the Biden Administration. As such, non-compete law is still currently controlled by state law and most states permit some form of non-compete agreements. Others have passed laws limiting the use of non-competes, including California, North Dakota, Montana and Oklahoma. Washington, D.C., signed its own restriction on non-competes in January, but the effective date for the law has not yet been determined, according to the district’s Office of the Attorney General.

The non-compete provision is part of a broad directive to federal agencies that targets barriers to economic competition in a variety of industries, including healthcare, transportation and internet service, among others. The White House said actions on non-competes would make it easier for workers to change jobs while raising wages.

However, the EO is vague on details, leaves several questions unanswered and it does not ban or impact any existing employment agreement. Since this is an EO, it will now be up to the FTC to issue some type of guidance, regulation or rule addressing the Biden Administration’s concern and at this time, it remains uncertain if or when the FTC plans to do so or what the scope of that rule will be.

Moreover, the FTC will have an uphill battle in drafting rules regarding non-compete agreements and will face challenges. In January 2020, the FTC held a workshop regarding non-compete agreements. In his opening remarks, FTC Commissioner Noah Joshua Phillips addressed the several hurdles the FTC faced, “including the lack of clarity in the rulemaking authority, the traditional commitment of the issue to the states, the fact that neither the FTC nor any court has found non-competes to violate the FTC Act’s prohibition against ‘unfair methods of competition’, and the lack of a good historical precedent.”

NSBA will continue to monitor the situation and review what the FTC does in response to the EO so we can take the necessary actions on what the potential impact will be on employers.