In July, President Joe Biden signed an Executive Order on Promoting Competition in the American Economy, including 72 initiatives intended to lower prices, increase wages, and promote innovation and economic growth. One of the initiatives asks the Federal Trade Commission (FTC) to curtail the use of non-compete and no-poach agreements that, according to the Order, may unfairly harm employee wages, work conditions, and mobility.
Specific to the labor market, the Order notes that roughly half of private sector businesses require at least some employees to sign non-compete agreements as a condition of employment, reducing the power of workers to bargain for higher wages and working conditions. Almost 30% of jobs require licensing and fewer than 5% of such occupations have licensing that is consistent from state to state, making relocation between states burdensome. The Order also notes the harm of current guidance by the Department of Justice and FTC to human resource personnel that allows third parties to make wage information available to employers but not employees, unfairly restricting wage and benefit negotiation.
In response to those facts, the Order of the President:
- Encourages the FTC to ban or limit non-compete agreements.
- Encourages the FTC to ban unnecessary occupational licensing restrictions that impede economic mobility.
- Encourages the FTC and DOJ to strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another.
- Encourages all government agencies to address policies that stifle competition.
Non-competes and other post-employment restrictions generally are state regulated, and the Executive Order does not trigger immediate changes to the law. It does, however, suggest that such restrictions are under scrutiny and may eventually be subject to federal regulation.
Companies and business groups are likely to challenge any such regulations, viewing restrictions as harmful to their investments in trade secrets, intellectual property, and goodwill between its workforce and customers. Protecting proprietary information is important concern, necessary to preserve innovation and maintain a competitive edge. Such knowledge cannot simply be left behind when an employer leaves the job. Relationships between employees and customers are also important to the company’s reputation, which is harmed when a former employee joins a competitor. Currently, most states enforce non-competes only to the extent that they are necessary to protect an employer’s trade secrets and intellectual property.
Additionally, businesses are required to use reasonable measures to keep their trade secrets confidential. Failure to do so can result in the loss of intellectual property rights to those trade secrets. Non-compete agreements are a solid protective measure when part of a strategy to maintain confidentiality.
An employment attorney can provide insight concerning employment agreements and other company practices that may be subject to restriction in the future. As always, we are happy to help.