President Joe Biden recently signed an executive order that encourages the Federal Trade Commission (FTC) to ban or limit noncompete agreements. The order is meant to promote competition and economic growth by making it easier for workers to change jobs, among other objectives.
What to Expect
The FTC will review noncompete agreements, which may involve the FTC issuing an order to curtail their use. The FTC is expected to conduct a public inquiry process reviewing all of the legal, human resources, and economic competitiveness issues around non-compete agreements.
Any action that the FTC takes may very well draw a legal challenge. However, the extent of such a challenge will depend on how far the FTC will interfere with the contractual relationships between employers and employees.
It is doubtful the FTC will have an outright ban on noncompetes.
Remember to Check State Law
The enforceability of non-compete agreements is generally governed by state law.
It should be noted that if noncompete agreements are outright banned, employers may be able to use other restrictive covenants that protect trade secrets and confidential information.
In many cases, restrictive covenants will be enforced if:
- There is a legitimate business interest that needs to be protected (such as trade secrets or customer lists).
- The agreement is narrowly tailored to protect that interests
Employers also may consider using nondisclosure or confidentiality agreements to protect their trade secrets and proprietary information.
Tips for Employers
Now is a great time for employers to review their procedures for protecting confidential information and trade secrets.