Presidential Executive Order Targets Non-Compete Agreements

Nilan Johnson Lewis PA
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On July 8, 2021, President Biden announced that he would issue an Executive Order (EO) calling on the Federal Trade Commission (FTC) to adopt rules curtailing the use of non-compete agreements. While the announcement offers few details so far, questions remain about the FTC’s legal authority to regulate non-competes in the manner sought by President Biden. One can assume the EO will be consistent with the Obama Administration’s initiative on non-competes, which:

  • focused on banning non-competes only for low-wage earners,
  • sought improved transparency in the use of non-competes, and
  • encouraged courts to void overly broad non-competes rather than rewrite them.

In pushing the initiative, however, the Obama Administration specifically recognized that employers could protect their trade secrets.

President Biden’s announcement should be considered alongside ongoing activity by the Department of Justice (DOJ). Like President Biden’s plans with the FTC, the DOJ has scrutinized (under anti-trust laws) employee no-poach and no-hire agreements between competitors and initiated civil and criminal actions.

In light of President Biden’s anticipated EO, we recommend the following immediate steps:

  1. Avoid no-poaching. Take care in reaching agreements with other companies that prohibit the poaching or hiring of employees. Those agreements should be carefully considered and drafted to be reasonably connected to a broader legitimate business concern to avoid anti-trust liability.
  2. One size does not fit all. Avoid one-size-fits-all restrictive covenants agreements that contain the same restrictions for all levels of employees. Instead, non-competes should be targeted to higher-level executives, customer non-solicits should be targeted to customer-facing employees, and non-disclosure prohibitions can be broadly applied.
  3. Protect trade secrets. Tie non-compete restrictions to the protection of trade secrets by having employees agree that those protections are the reasons the restrictions are necessary and legitimate.
  4. Allow reformation. Include express agreements to allow courts to sever unenforceable provisions and reform overbroad restrictions.
  5. Narrow non-competes. Avoid any restrictions that prohibit future work “in any capacity,” as courts routinely strike those as too broad.

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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