Executive Action on Non-Competes

Dating back to the Obama Administration, there has been discussion about the perceived need for non-compete reform at both the state and federal levels.  A number of state legislatures have passed reform measures.  Legislative reforms at the federal level, however, have not gained traction, and were all but guaranteed to fail during the Trump Administration.  It appears that may soon change.  During his campaign for the presidency, Joe Biden pledged to pass legislation eliminating non-competes, except where “absolutely necessary to protect a narrowly defined category of trade secrets.” Now, President Biden is expected to announce in the coming days an executive order cracking down on the use of non-compete agreements.  More specifically, it has been reported that the Administration plans to direct the Federal Trade Commission to implement rules that restrict or prohibit the use of employee non-competes.  The specifics of the anticipated order have not been publicly announced.  However, if Biden’s campaign messaging is any indication of what may come, it appears that the focus could be to limit use of non-competes to situations involving trade secrets.  If that is the case, the order will have a drastic impact upon the field of non-compete law, as protection of trade secrets is only one of a number of interests that are commonly recognized as justifications for enforcement of non-competes.  For example, employers who currently use geographically-defined non-competes to protect customer relationships may have to restructure their agreements into customer non-solicitation restrictions.  Likewise, employers who invest in unique, specialized training for their employees—which, as of now, may justify the use of a non-compete in various states—may simply lose the ability to prevent their competitors from immediately gaining the  benefit of that investment. We will continue to monitor developments in this important area and provide further updates.  Return here often to stay informed.