Biden Executive Order Calls for Ban on Noncompete Agreements

On Friday, July 9, 2021, President Joe Biden signed an executive order directing various federal agencies to implement 72 specific actions intended broadly to increase competition in the American economy. The executive order is intended to impact a wide range of economic activity, including mergers and acquisitions, occupational licensing, anticompetitive behavior, and prices of medical devices and prescription drugs.

One of the specific activities the order seeks to modify is the use of noncompete agreements to limit the ability of employees to work for competitors after leaving their employer. In a public statement on July 9, 2021, President Biden decried the “ridiculous” prevalence of noncompete agreements in the United States, alleging that one in three American businesses required employees to sign noncompete agreements and that one in five American workers without a college degree were subjected to noncompete agreements. President Joseph R. Biden, Remarks at Signing of an Executive Order Promoting Competition in the American Economy (July 9, 2021) President Biden argued these agreements, in many cases, were implemented not to protect any legitimate interest of the employer but to “keep wages low.” President Biden’s executive order accordingly directs the FTC to “ban or limit noncompete agreements.” At this time, the text of the executive order has not been released, and it remains to be seen exactly how the FTC will respond to the president’s directive.

Although no rules have yet changed regarding the enforceability of noncompete agreements in the United States, employers should anticipate that attempts to impose noncompete agreements on employees moving forward may be opposed by the FTC as an unfair labor practice. Employers should use particular caution when attempting to impose noncompete agreements upon low-wage workers or workers without advanced education, as those were two groups of workers particularly cited as examples of overreach in the current noncompete landscape. The FTC has the authority to seek injunctive relief and financial penalties from companies that take anticompetitive action, and employers should anticipate the current iteration of the FTC will be more willing to use those powers in egregious circumstances, given the public stance of the Biden administration.

If you are an employer utilizing noncompete agreements or considering doing so, contact your Dinsmore Labor and Employment attorney to discuss the best way to implement these agreements in light of the FTC’s anticipated crackdown.