Author: Corey Silva
On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy, which intends to “promote competition in the American economy” which will arguably foster economic growth and innovation. This sweeping Executive Order encouraged various administrative agencies within the federal government to make rules in accordance with the Order’s goals. The Executive Order encouraged the Federal Trade Commission (“FTC”) “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
It is impossible to predict the scope of any rules actually promulgated by the FTC. Many experts believe the new rules could range from requiring employers to provide non-competes to an employee prior to an employee’s start date (which is already considered best practice) to an outright ban on non-competes, thereby upending several decades of legal precedent. Even though action by the FTC may not be imminent, the Executive Order could forewarn businesses about rising sentiment against non-competes.
In Massachusetts, the relevant laws governing non-competes changed markedly in 2018. Governor Baker signed into law a bill regulating non-competes, limiting their enforceability and creating specific statutory requirements that non-competes must satisfy. Specifically, the non-compete must be: (1) in writing; (2) signed by the employer and employee; and (3) state the employee has the right to consult counsel prior to signing. The new law also mandated that non-competes must be supported by independent consideration beyond continued employment and established revised time, geography, and activity restraints.
Given the tremendous uncertainty surrounding non-competes, business owners should consider their various options. For risk management purposes, employers must stay up to date on the laws governing non-competes at both federal and state levels. Employers could also take advantage of any “grandfather” clause that may apply to the FTC’s new rules by entering into non-competes before the FTC passes any new rules.
The Executive Order’s suggested rulemaking also should motivate employers to reconsider their processes for protecting confidential information and trade secrets, including a reevaluation of what their restrictive covenants prohibit and what groups of employees are covered by these agreements. Bolstering and strengthening language regarding non-solicitation of customers, vendors, and employees to include broad language will often achieve the goal of protecting a Company’s proprietary and confidential information and legitimate business interests.