Biden’s Proposed Ban on Noncompete Agreements: What Companies Can do to Navigate New Rules

President Joe Biden has signed an executive order seeking to ban or limit employee noncompete agreements. The order, which is aimed at promoting competition in the U.S. economy, gives the Federal Trade Commission (FTC) wide discretion to determine whether and how to regulate the ability of businesses to restrict where an employee can work after leaving a job.

In the last several years, there have been a number of actions at the state level to limit noncompetes, with some states banning or limiting their scope. “The rules—if they survive legal challenge—could eventually incorporate similar concepts as a way to limit, rather than completely ban, noncompetes,” said management-side labor and employment lawyer Mike Muskat of Houston-based Muskat, Mahony & Devine.

“Companies that are anticipating FTC regulation of noncompetes should evaluate the situations in which they believe they are necessary for the protection of their business, and consider whether those agreements are narrowly tailored to protect the company’s interests without unnecessarily restricting employee mobility,” said Mr. Muskat. “For example, one size fits all noncompetes, where the company relies on general contractual language, may be among the types of agreements targeted by the FTC. In fact, many judges already refuse to enforce these types of agreements as written.”

Mr. Muskat recommends that companies that employ people who have substantial access to company trade secrets and are in a position to do serious damage if they become employed by a competitor make sure they are also utilizing other legal avenues to protect their company interests.

“Companies should remember that they have other tools to help protect their trade secrets and confidential information, including confidentiality/nondisclosure agreements and federal and state laws that protect confidential information, including, for example, the federal Defend Trade Secrets Act.”

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