President Biden signed the Executive Order on Promoting Competition in the American Economy which, among other objectives intended to increase competition in a wide range of economic activity, encourages the Federal Trade Commission (FTC) to ban or limit non-compete agreements. Specifically, President Biden directs 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.”
Although last week’s Executive Order does not have an immediate impact on employers, we have seen increased scrutiny of the use of restrictive covenants in the workforce, including non-compete agreements, at the state and now federal levels (although of course, noncompetes are generally unlawful in California absent narrow exceptions). The recent increase in state legislation aiming to ban or limit non-competes, combined with the President’s Executive Order, indicates that we could see comprehensive rulemaking from the FTC in the coming months or years.
Given the Executive Order, employers should continue to review their non-compete agreements for compliance with current laws, and begin evaluating their overall business protection strategies should non-compete agreements become limited or banned at the federal level.