Future of Non-Competes: Insights into Executive Order Promoting Competition in the American Economy

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“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.”

Obviously, this is extremely vague, presumably to give the Federal Trade Commission (FTC) broad authority to craft regulations. However, the bottom line is that this EO has no immediate effect on the use of non-compete agreements. If the FTC chooses to act, it will likely be a long road before anything is put into effect. There are also many considerations as to who, what, and when potential regulations would apply, some of which are outlined below.

FTC obstacles:

  • There is currently no federal body of law related to non-competes that the FTC can rely on. Therefore, regulations will need to be drafted, likely with input from multiple outside business and government entities.
  • It is unclear where the FTC will get its rulemaking authority. Non-competes have generally been an area governed by state law.
  • Even if the FTC has the authority, there is ample case law precedent that non-competes do not violate the FTC’s unfair competition regulations.

What potential regulations may look like:

  • There has been a suggestion that potential regulations will not aim to limit all non-competes, but only those that are “unfair.” Non-competes are already limited in terms of time and distance, so it is unclear what else would be added to an “unfair” analysis.
  • Some commentators have opined that potential regulations will specifically target non-competes involving low-wage workers and certain industries with drastically uneven bargaining power. Again, it is unclear how the FTC will be able to craft regulations tailored to those areas.
  • There has also been a suggestion that the phrase “other clauses or agreements” in Section 5(g) of the EO may cover other restrictive covenants in addition to non-competes, such as non-solicitation and non-disclosure agreements, which would significantly widen the scope of any potential regulations.

Next Steps:

At this point, there is no need for immediate action involving non-competes or other restrictive covenants. Assuming that the FTC has the authority to act, any potential regulations are likely many months away and, as time goes on, we will get a clearer picture on what potential regulations may look like. However, businesses should evaluate the restrictive covenants that are currently in use (non-competes, non-solicitations, and Non-Disclosure Agreements) and consider whether, in the event regulations are put into place, there are ways to protect the interests that are intended to be protected in a manner less restrictive to employees.

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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