Last Updated on December 1, 2022 by Anda Malescu
Biden Administration Executive Order on Non-Compete Agreements
On July 9, 2021 President Biden signed an executive order which introduces various measures that are meant to boost competition between businesses and to reduce corporations’ leverage when it comes to employees. One of these measures is that the President is instructing the Federal Trade Commission (FTC) to ban or limit noncompete agreements on a national level.
In order to do that, the FTC would have to go through the rule-making process which can take a year or more. Until then, non-compete agreements are subject to the laws of the individual states, with each state in the United States having its own unique laws about whether, when and to what extent the non-compete agreements are enforceable.
Some states, such as California, totally make a non-compete agreement unenforceable, while other states such as Montana or Oregon, prohibit non-compete agreements except in limited circumstances. However, in certain other states, such as Florida, non-compete agreements are enforceable.
Generally, a non-compete agreement is a contract between an employer and an employee in which the employee agrees not to compete with the employer after they leave their position for a specific period of time or within a specific area.
Usually, non-compete agreements are meant to prevent employees from opening a new business that competes directly with their former employer or to start employment in a specific capacity with a new employer competing directly or indirectly with the former employer. Often non-compete clauses serve a legitimate purpose to safeguard an employer’s interest in a highly specialized field or a vital function. In this case non-compete agreements are applied to highly paid and well-educated employees.
However, the Biden administration is arguing that non-compete agreements serve to keep workers’ wages down and disempower employees from demanding better working conditions and higher pay.
For example, an employee might be prevented from receiving offers from potential employers because they have doubts about the worker being able to take the job because of the threat of legal action. That inadvertently limits the bargaining power of an employee who would be forced to remain with their current employer and pass on any wage increases. While highly paid employees have the ability to move away from the geographic area specified in the non-compete, low wage workers face severely limited options.
Based on a survey that included 637 employers, the White House estimates that noncompete agreements are used by roughly 50% of all private-sector businesses for at least some of their employees which is anywhere between 36 million and 60 million workers. The survey also found that almost 30% of establishments offering an average hourly wage below $13 require non-competes for all their workers.
Currently, the states that want to protect employees have banned or limited the effects on non-competes while other still allow their use.
In particular, California, North Dakota and Oklahoma have completely banned the enforcement of non-compete agreements, and another close to a dozen states prohibit the use of non-competes when it comes to low wage workers.
A new FTC rule would be the first attempt at regulating non-competes at a federal level and is likely to be challenged by U.S. businesses in the courts. Some have even raised the question if the FTC has the authority to ban non-compete agreement in the first place.
It is likely that in order to avoid legal challenges, the FTC will narrow the non-compete ban to protect only low wage workers that are most likely to suffer adverse consequences. The FTC is not likely to be banning the enforcement of non-competes for employees who possess trade secrets or other confidential information.
The state of affairs currently is that even in states that ban the enforcement of non-compete agreements, companies have continued to include them in employment contracts with the hope that employees would not dare violate them either way. The best course of action for employees that are subject to non-compete is to consult a licensed attorney in their respective state of employment in order to learn if legal action can be taken against them.
Malescu Law can assist
If you have questions regarding the enforceability of a non-compete agreement or you are a Florida employer looking to safeguard legitimate business interests in Florida, contact us, your experiences business and corporate law firm in Miami, Florida, USA.
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