Executive Order Promises Future Federal Move Against Noncompete Agreements

On Friday, July 9, 2021, President Biden issued a sweeping executive order that asked the Federal Trade Commission (“FTC”) to develop new regulations that ban or limit noncompete agreements. The request has no immediate impact on existing noncompete agreements, but employers should expect new regulations in the coming months. In the meantime, many questions remain for employers to consider: Will the FTC ban noncompete provisions outright, or will it limit their use with only “low-wage” workers?  What would constitute a “low-wage” worker?  Will the FTC regulations create new penalties against companies who seek to use non-compete agreements? Can the regulations have retroactive effect?  Will other types of restrictive covenants (including confidentiality or non-solicitation provisions) be excluded from any order?

We will be monitoring the Administration’s actions closely in the coming months, and will provide additional guidance when new regulations are announced.  In the interim, employers should ensure that any noncompete agreements that are currently being utilized or contemplated are in compliance with new state laws--many of which already address the questions being considered by the FTC.

For example, Oregon and Illinois recently took action to limit employers’ use of noncompete provisions that prohibit “low-wage” workers from moving to competitors. Although the statutes are similar in nature, they define “low wage” workers differently.  In Oregon, noncompete covenants are prohibited for employees earning less than $100,533 per year, adjusted annually based on inflation. In Illinois, however, the wage threshold is only $75,000 annually. Notably, Illinois also enacted provisions imposing new penalties against companies that use illegal or abusive noncompete contracts.

Oregon and Illinois are not the only states to have enacted legislation barring noncompete agreements for “low-wage” workers, as the following states have all enacted restrictions in favor of “low-wage” workers since 2016 (though their thresholds for “low-wage” also vary greatly):

• Maine
• Maryland
• Massachusetts
• New Hampshire
• Rhode Island
• Virginia
• Washington

Other states have gone further.  Nevada, for example, recently barred noncompetes for all hourly workers, and enacted provisions imposing new penalties against companies that use illegal or abusive noncompete contracts. Similarly, the District of Columbia banned nearly all noncompete provisions early this year, joining California, North Dakota, and Oklahoma as jurisdictions with broad restrictions against noncompete agreements.

If you have any questions regarding the latest trend in noncompete legislation or the executive order, please contact Glenn Cunningham at gcunningham@goodwin.com, Peter Murphy at pjmurphy@goodwin.com, Daniel Schwartz at dschwartz@goodwin.com or Sarah Niemiroski at sniemiroski@goodwin.com.