President Biden Signs Executive Order Regarding Non-compete Agreements

In July of 2021, President Joe Biden signed an Executive Order on Promoting Competition in the American Economy (“Order”). The purpose of this action is to encourage the Federal Trade Commission (“FTC”) to exercise 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.“

Biden’s action is part of a larger effort to promote competition and remove barriers to economic growth in the country. The White House believes that non-compete agreements drive down wages by making it harder for workers to switch to jobs with higher wages.

The Order does not have any effect on current law or the enforceability of non-competition agreements in any context in any jurisdiction. In no way does the Order require employers to modify their existing non-competition agreements. The Order is to “encourage[s]” the FTC to “consider” using its authority to “curtail the unfair use of non-compete clauses.” These include non-compete agreements between employers and employees, partners, or those in the sale of a business.

The White House has noted that it wants to address non-competition agreements that “affec[t] construction workers, hotel workers, many blue-collar jobs, [and] not just high-level executives.”  The Biden Administration has expressed the opinion that ordinary workers working for low wages in the fast-food industry should be protected from unfair non-compete agreements. The hope is that the FTC will consider taking further action and draft new rules and regulations that correlate with the White House’s direction.

In recent years, many states, including Illinois, Louisiana, Maine, Maryland, Massachusetts, Nevada, New Hampshire, Oregon, Rhode Island, Washington, and Washington D.C. have passed laws restricting the use of non-competition agreements, typically their application to low-wage workers, as well as workers in certain industries.

The Obama Administration sought to ban non-compete clauses for certain categories of workers, such as workers working for a wage under a certain threshold; workers in certain occupations that promote public health and safety; workers unlikely to possess trade secrets; or workers who may suffer undue adverse effects from non-compete agreements, such as workers who are terminated or laid off without cause.

Non-compete agreements are still common in manufacturing, retail, and construction jobs. Many workers bound by these agreements often enter jobs unaware that their employers require them. In a recent survey, almost one-third of businesses reported that they ask new employees to sign the agreements after they have already accepted the job, often on their first day of work.

California prohibits non-compete agreements. California Business and Professions Code § 16600 states “every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void.” Employees in California may void contracts with illegal provisions such as those related to any type of non-competition. Employers are subject to paying the attorney’s fees of their employees in any non-compete litigation. However, employers may not be awarded attorney’s fees from the employee, even if the employer wins.

If your employer has failed to comply with any California labor and employment laws, the experienced employment law attorneys at Moss Bollinger can help you determine if your valuable rights have been violated. If so, we can help make your employer pay for any unlawful conduct. Moss Bollinger is dedicated to protecting and asserting the rights of California employees. Contact us online for a free consultation.