President Biden’s Executive Order Regarding Non-Competes
On July 9, 2021, President Biden issued his Executive Order on Promoting Competition in the American Economy. The Order addresses issues that the President believes hinder “a fair, open, and competitive marketplace.” These include non-compete agreements.
The Order does not affect the current enforceability of non-competes. Rather it directs the FTC to consider drafting rules under the Federal Trade Commission Act to “curtail the unfair use of non-compete clauses.” The full text of the Order is here. But the Order does reiterate a position that Biden expressed in his 2020 campaign, i.e. that most post-employment restrictions are unfair to workers and unhealthy for the economy.
The Order also offers an opportunity to consider post-employment restrictions. Notwithstanding the President’s concerns, non-compete agreements are now governed by statute or by the common law of contracts (e.g. laws developed by judicial decisions) in each state. Most states, like Ohio, will enforce non-compete agreements if they reasonably protect legitimate business interests, but will not enforce agreements that merely preclude ordinary competition.
Confidentiality and Non-Solicit Agreements
Other post-employment agreements such as non-solicitation and confidentiality agreements may be equally important and easier to enforce. Confidentiality agreements are crucial, as they protect the confidential information and trade secrets of the business. Absent such agreements, the business likely loses the protection of state and federal trade secret laws and cannot protect non-trade secret information that it considers confidential. And confidentiality agreements are generally presumed enforceable.
Non-solicit agreements often preclude former employees from soliciting business from the employer’s customers and soliciting other employees to leave their employment. In Ohio, non-solicit agreements are subject to the same reasonableness standard similar as non-competes but are more likely to be enforced as they are often less burdensome on the former employee.
What the Biden administration can or will do with non-compete agreements in the future is unknown. But businesses should remain focused on important protections that will be in place irrespective of federal executive action.
If you have a question about a non-competition agreement, contact Cavitch employment attorney Max E. Dehn, [email protected]