Executive Order on Non-Compete Agreements

On July 9, 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy which provided sweeping initiatives designed to promote workers’ interests, and competition.  More specifically, the Order includes, “72 initiatives by more than a dozen federal agencies to promptly tackle some of the most pressing competition problems across our economy.”^[1]   One key provision among these initiatives is directed at restricting employers’ use of noncompetition agreements.  According to the White House website and the published “Fact Sheet” to supplement the Order, the Administration explains that such a provision is necessary because noncompetition agreements are preventing workers from attaining higher wages.  Moreover and prior to signing the Order, President Biden asserted that one out of three businesses require workers to sign a non-compete agreement.^[2]

What is a noncompetition agreement?

 A noncompetition agreement, or “non-compete” are clauses in an employment contract that limit the ability for an employee to join a new business/profession or even start a competing one.   Generally, the employee agrees to the non-compete agreement either during and/or after the employment for purposes of protecting the business’ trade secrets, confidential records, client data, strategy, future marketing ideas, or other sensitive information.  Ordinarily, non-compete agreements are found to be legally enforceable if they have reasonable limitations, such as identifiable and sensible areas where employees may or may not work, or a precise amount of time that must pass before an employee can begin work in the field.

Legal Implications of the Executive Order

In the Order, President Biden “encourages” the Federal Trade Commission (FTC) to adopt rules banning or limiting non-compete agreements stating in part:  “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.”  Notably, the Order does not contain any explicit language that bans or restricts non-compete agreements.  Moreover, the Order does not nullify current non-compete agreements, nor does it direct the FTC to take any specific action.

At issue is that non-compete agreements are regulated and governed by state law, and only a few states have specific legislation that significantly prohibits them.  In New York, non-compete agreements are legally enforceable, but they must be narrowly drawn.  Additionally, the New York Attorney General’s office has proposed legislation to, “curb the rampant misuse of non-compete agreements.”^[3]  Nonetheless, Brian Deese, director of the National Economic Council at the White House, held that, “even in cases where states have authorities, the employers are making contracts where there is a federal nexus, and that extends to FTC authorities to limit or ban anti-competitive practices.”

How the Executive Order’s noncompete provisions impacts businesses and workers

Although the FTC’s administrative rulemaking process may take time to come into effect, employers and employees should carefully review their current non-compete agreements and/or policies with legal counsel.

If you have questions about your non-compete rights under the Executive Order on Promoting Competition in the American Economy, or you believe that your employer has violated your non-compete agreement in any way, we can help.  To discuss your situation or to speak to an attorney familiar with workplace rights, contact Borrelli & Associates, P.L.L.C. to schedule a free consultation through one of our websites, www.employmentlawyernewyork.com, www.516abogado.com, or any of our phone numbers: (516) 871-4267, (516) ABOGADO, or (212) 679-5000.

^[1] https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/

^[2] White House, President Biden Delivers Remarks and Signs an Executive Order, Youtube (July 9, 2021).

^[3] https://ag.ny.gov/press-release/2018/ag-underwood-announces-settlement-wework-end-use-overly-broad-non-competes