President Biden Issues Executive Order Requesting Prohibition of Non-Compete Agreements

July 29, 2021

On July 9, 2021, President Joe Biden issued Executive Order 14036 (“EO 14036”), which seeks to broadly promote competition in the workplace nationwide. EO 14036 identifies non-compete agreements in the employment context as one of several pressing concerns stifling competition in the American workplace and creating obstacles to worker mobility. Specifically, EO 14026 asserts that “[p]owerful companies require workers to sign non-compete agreements that restrict their ability change jobs.”

Employers typically use non-compete agreements to prevent departing employees from working for competitors or contacting customers sometimes in a particular geographic area or for a certain amount of time. Non-compete agreements have long been the subject of scrutiny based on the argument that such agreements hurt employee wages and marketplace competition.

Among other things, EO 14036 encourages the Federal Trade Commission (“FTC”) to “exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” While the Biden administration’s goal is clearly to ban or limit non-compete agreements under federal law, it is important to note that the provisions of EO 14036 regarding non-compete agreements are not mandatory, and presently do nothing to change the enforceability of such agreements in the US.

However, many states, including California, already limit or essentially ban non-compete agreements. In California, under Business and Professions Code § 16600, “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void,” subject to narrow, specified exceptions that apply only to business owners, shareholders, and partners. 

Nonetheless, employers and employees alike should be prepared for further action by the federal government to curtail the use of non-compete agreements. If the FTC answers President Biden’s call to create new rules limiting or prohibiting the use of non-compete agreements in the employment context, those changes could fundamentally alter employment agreements throughout the country. 

For employees, it is important that you are free of illegal restraints on your ability to change jobs and advance your career. If your employer has required you to sign a non-compete agreement, please contact the attorneys at Freeburg & Granieri, APC today to discuss what steps you can take to potentially void an illegal provision.

For employers, now is the perfect time to review your employment agreements and the restrictive covenants they may impose. The liability for requiring, or attempting to enforce, a non-compete agreement can have devastating effects on your business. Please contact the attorneys at Freeburg & Granieri, APC today to have your employment agreements reviewed so they can protect your business’ confidential and proprietary information through lawful means.

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