BIDEN ADMINISTRATION AIMS TO RESTRICT NONCOMPETE AGREEMENTS AND OTHER RESTRICTIVE COVENANTS.
On July 9, 2021, President Biden signed an Executive Order, which directs the Federal Trade Commission (the “FTC”), to limit non-compete agreements and other clauses and provisions, which “unfairly limit worker mobility.”
Non-compete contracts are agreements between employers and employees that generally restrict where a person can work after leaving a job, and are fairly common in construction, manufacturing, and retail, media and IT sector. However, according to the Biden administration, non-compete contracts prevent or make it more difficult for workers to negotiate for higher wages and better work conditions. Contrarily, many business owners and employers rely on non-compete agreements and restrictive covenants to protect their proprietary information, trade secrets, confidential information, employee training efforts, and otherwise prevent unfair competition.
The Executive Order does not instantly ban or limit non-compete provisions; however, it encourages the FTC to take steps to ban or limit non-compete agreements through administrative rulemaking. If non-compete agreements are banned, employers will be forced to rely on trade secret misappropriation laws for protection of their confidential information, and generally, the companies trying to enforce these laws have a high burden to prove misappropriation and damages after an employee has left to join a competitor.
Whatever the limitations of federal-level legislation or rulemaking may be, employers should now review their processes for protecting confidential information and trade secrets, ensure that their non-compete agreements are narrowly tailored and used only where there is a legitimate basis, avoid entering into restrictive agreements with low-wage earners, unless there is a compelling business interest for doing so, and in the meantime consider alternative forms of trade secret protection, in case of a ban of non-compete agreements.
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