Biden Directs FTC To Regulate Non-Compete Agreements

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On July 9, 2021, President Biden issued Executive Order 14036, “Promoting Competition in the American Economy.” The Executive Order included 72 actions and recommendations to federal agencies designed to review and revise workforce practices, ranging from mergers and acquisitions to airline baggage fees. Notable among these directives was Section 5(g), in which the President “encouraged” the Federal Trade Commission (FTC) to regulate non-compete agreements – an unprecedented use of the agency’s rulemaking authority.
 

Section 5(g) of Executive Order 14036 states:

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.

In its rollout of the Executive Order, the White House specifically highlighted the seriousness with which it is pursuing changes to non-compete agreements. In a fact sheet provided with the Executive Order, the White House explained that the purpose of Executive Order 14036 was to “[m]ake it easier to change jobs and help raise wages by banning or limiting non-compete agreements and unnecessary, cumbersome occupational licensing requirements that impede economic mobility.” The White House described non-competes as “one way companies stifle competition” and stated that “roughly half of private-sector businesses require at least some employees to enter non-compete agreements, affecting some 36 to 60 million workers.”

Despite these strong policy statements, the Executive Order does not have any immediate impact on non-compete agreements. Currently, non-competes are regulated only at the state level through statutes and common law. As recently as January 2021, for example, the District of Columbia enacted a near-total ban on non-compete agreements. Other states, such as Maryland, have imposed more limited bans on non-competes for workers earning less than $15 an hour. Although multiple bills relating to non-competes have been introduced at the federal level over the years, none have gained momentum thus far.

It is not known at this time when the FTC will begin its rulemaking process and to what extent it will seek to ban or curtail the use of non-compete agreements. Recently-installed FTC Chair Lina M. Khan is a noted advocate for aggressively using the FTC’s rulemaking process, and the agency can be expected to take action in response to the Executive Order. However, the agency would also face significant constitutional challenges on the basis that it is overstepping its authority.

Takeaway

Employers should be aware, particularly in response to questions from employees, that Executive Order 14036 has not changed or invalidated current non-compete agreements. However, employers should continue to monitor activity on non-compete regulation at both the federal and state level.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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