September 18, 2021

Volume XI, Number 261

Advertisement

September 17, 2021

Subscribe to Latest Legal News and Analysis

September 16, 2021

Subscribe to Latest Legal News and Analysis

September 15, 2021

Subscribe to Latest Legal News and Analysis

Noncompete Agreements Are Back in Federal Crosshairs

President Biden issued a new lengthy executive order (EO) on July 9, 2021, aimed at promoting competition in the United States. While that sounds great, everyone needs to keep in mind that this new EO also is aimed at noncompete agreements used by many employers across the country. Specifically, Section 5(g) of the EO encourages the chair of the Federal Trade Commission (FTC) to use the FTC’s statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” This new EO appears to be consistent with a “state call to action” that President Obama issued in 2016 and that we blogged about here. However, this new EO engages a federal agency rather than calling for action by states.

Background on Restrictive Covenants

Noncompete agreements, as well as related agreements such as nondisclosure agreements, non-solicit agreements, and no-poach agreements, have long been used by employers across the country. Such agreements serve an important economic purpose to protect a business’s confidential information, an employer’s methods and training, and a company’s customer and client contacts. We blogged about these various types of restrictive covenant agreements here. Many companies depend heavily on such agreements to build and protect their businesses.

It is not clear what the new EO can or will do. Regulation of noncompete agreements has long been the province of state laws — which can vary widely. While Alabama law strongly enforces noncompetes, California law will not enforce them at all. So, what the FTC’s encouraged regulations might do are unknown. The introductory language of the EO’s “Fact Sheet” notes that many workers in construction and retail industries are required to sign noncompetes and that these agreements make it harder for these workers to switch to better paying jobs. Thus, one of the aims of the EO may be to target the use of noncompetes for hourly or lower-paid workers.

Wait and See

We will keep an eye on the FTC’s response to the EO and other developments at the federal level. For example, the proposed Workforce Mobility Act of 2021 would limit the use of noncompete agreements to the sale-of-business context. As of now, the bill has been introduced in both houses of Congress and is in the committee-review stage.

For now, employers should continue to use restrictive covenant agreements thoughtfully and based upon a legitimate company interest. Noncompetes for managers and sales employees always have a greater likelihood of being enforced than noncompetes for hourly workers, no matter how skilled they are. For example, a restrictive covenant simply designed to prevent a worker from taking his or her personal skill set somewhere else faces – and will likely face on the federal level – greater challenges than a noncompete for a sales worker with access to all sorts of confidential information. We will keep you posted in the coming months of any and all shots fired at the federal level.

© 2021 Bradley Arant Boult Cummings LLPNational Law Review, Volume XI, Number 217
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

John Hargrove Employment Lawyer Bradley
Partner

John Hargrove is a partner in the Birmingham office in the Labor and Employment and Construction and Procurement Practice Groups. He is chair of the Labor and Employment Group and is a Fellow in the American College of Labor and Employment Lawyers. He also is listed in Chambers USA, The Best Lawyers in America, and Alabama Super Lawyers.

John regularly represents public and private companies in mining, construction, manufacturing, medical, communications and warehousing industries, among others. He also represents...

205.521.8343
Anne R. Yuengert Employment Attorney Bradley Birmingham
Partner

Anne Yuengert works with clients to manage their employees, including conducting workplace investigations of harassment or theft, training employees and supervisors, consulting on reductions in force and severance agreements, drafting employment agreements (including enforceable noncompetes) and handbooks, assessing reasonable accommodations for disabilities, and working through issues surrounding FMLA and USERRA leave. When preventive measures are not enough, she handles EEOC charges, OFCCP and DOL complaints and investigations, and has handled cases before arbitrators...

205-521-8362
Advertisement
Advertisement
Advertisement