Candidate Joe Biden made many promises on the campaign trail. One that caught the ear of businesses was the promise to limit the use of non-compete agreements, particularly among low-income workers. Since this was usually regulated on a state-by-state basis, it was worth noting. Six months after taking office, the president followed through on his promise using a sweeping executive order that included the Fair Trade Commission (FTC) regulating non-competes.
The goal was to limit employers’ power in retaining employees by making it difficult for workers to find a similar job elsewhere. This theoretically allows the company to drive down wages and reduce competition. But businesses often use non-competes to protect investment in training workers, as well as to protect trade secrets and intellectual property.
Where it stands
North Dakota, Oklahoma, California and the District of Columbia have banned these agreements, claiming that they hurt competitive hiring practices. Pennsylvania courts, on the other hand, have found reasonable agreements to be enforceable. The word “reasonable” is subjective, but the courts generally view workers as entitled to seek work where they wish. Thus, there are sunset clauses, limitations over geographic boundaries, no overly broad definition of a similar type of job, and generally ruling against anything else that prevents an individual from earning a living.
More scrutiny is likely
The FTC will likely focus on curbing excessive non-compete agreements, particularly regarding entry-level workers. It will also probably crackdown on those who use them in states that forbid non-competes. The FTC can also look at companies in multiple states or who routinely violate the laws in their state. In reality, the executive order does not change the laws regulating non-competes and other restrictive covenants at this time, but it will vigorously enforce those regulations in place at the state level. We will share more on this in the coming months as the FTC acts. In the meantime, employers may want to reevaluate their agreements to ensure that they are enforceable.