New developments in employment non-competes

Since taking office, President Biden has indicated that his administration strongly disfavours non-competes. On 09 July 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy.[1] Among other priorities listed in the executive order, there was a directive for agencies to address agreements that may unduly limit workers’ ability to find new employment.

In July 2022, the National Labor Relations Board (NLRB) and the Federal Trade Commission (FTC) entered into a new memorandum of understanding[2] to work together to promote fair competition in labour markets. Areas of collaboration include: “the imposition of one-sided and restrictive contract provisions, such as non-compete and non-disclosure provisions; the extent and impact of labour market concentration; the impact of algorithmic decision making on workers; the ability of workers to act collectively; and the classification and treatment of workers”. This indicates that the two agencies will work together to reduce non-competes.

In January 2023, the FTC proposed a new rule[3] that would ban employers from imposing non-competes on their workers. Over 21,000 people submitted comments on the law, and a final rule is expected soon. The proposed agency rule states that it “is an unfair method of competition for an employer to enter into or attempt to enter into a non-compete clause with a worker; maintain with a worker a non-compete clause; or represent to a worker that the worker is subject to a non-compete clause where the employer has no good faith basis to believe that the worker is subject to an enforceable non-compete clause”. The FTC and other federal agencies would have enforcement ability to fine employers who continue to use noncompete provisions. Additionally, if an employer has a noncompete clause in existing agreements, a notice of rescission to employees is required within 45 days, so employees know that they are no longer bound by the agreement.

Some US states already have limitations or prohibitions on non-compete provisions. California has the strongest framework against non-competes, with an absolute prohibition on such provisions except in the context of the sale of a business. Other states limit the industries and types of jobs for which a noncompete may be used. The FTC’s proposed rule will supersede any inconsistent state statute or regulation.

Although the proposed rule has not yet been finalised, employers should be prepared for the new regulatory landscape, and begin to strategise about meeting business goals without relying on non-competes.

[1] Executive Order on Promoting Competition in the American Economy, July 9, 2021.

[2] Memorandum of Understanding Between the Federal Trade Commission (FTC) and the National Labor Relations Board (NLRB) Regarding Information Sharing, Cross-Agency Training, and Outreach in Areas of Common Regulatory Interest, July 19, 2022.

[3] Non-Compete Clause Rulemaking.

Pooja S. Nair is a business litigator and problem solver with a focus on the food and beverage sector. She combines litigation experience with a strategic perspective, so that legal decisions make business sense.