On July 9, 2021, President Biden issued his Executive Order on Promoting Competition in the American Economy. The executive order contains over 70 initiatives directed at more than a dozen federal agencies, including one that “encouraged” the Federal Trade Commission (“FTC”) to use its rulemaking ability “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
What this means for employers right now
The executive order has no immediate impact on existing non-compete agreements, nor does it prevent new non-compete agreements from being established. While the executive order directs the FTC to examine the use of non-compete agreements and pursue a rulemaking process that could limit or ban such agreements, it is unclear what actions the FTC may take. We will continue to keep you apprised of further developments in this area as new rules, if any, are introduced.
However, the issuance of the executive order clearly indicates the administration’s intention to vigorously pursue non-compete agreement reform through rulemaking and, perhaps, legislation. These actions are consistent with then-candidate Biden’s campaign promises to address non-compete agreements. In December 2020, President-Elect Biden released his “Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions.” The plan stated that Biden would “work with Congress to eliminate all non-compete agreements,” except in a few select instances.
Many states are pursuing similar reforms. As of mid-July 2021, California, North Dakota, and Oklahoma are the only states that ban non-competes entirely, but roughly a dozen more have banned or limited these types of agreements for certain categories of low-wage workers. Washington, D.C. also bans non-competes.
To the extent the FTC does propose rules limiting or banning non-compete agreements, there will be a significant amount of debate and almost certainly legal challenges, concerning whether it has the power to do so. Some questions include: Does the FTC have the authority to regulate non-compete agreements under the Federal Trade Commission Act? Would any actions taken by the FTC encroach upon the legislative powers of Congress? Are issues of federalism being implicated, as contract law is generally an area that falls to state legislatures?
What Happens Next
The executive order does not immediately impact existing non-compete agreements, nor does it prevent new ones from being established. However, Michigan employers should review any existing non-compete agreements they may have in place to ensure they meet the current statutory requirements set forth in the Michigan Antitrust Reform Act. Employers should also pay careful attention to federal rulemaking that may soon be proposed, as well as actions by the Michigan legislature and other states in which they do business to limit or ban non-compete agreements.
We will continue to monitor the situation and keep you updated as to any new developments that could impact your business.
