Client Alert: Your Employee Non-Competes May Soon Be Unenforceable (July Update)
- Stay abreast of forthcoming changes to federal law that may impact employee non-competes nationwide.
- Continue to monitor your Company’s non-compete practices.
- Continue to assess alternatives for protecting your Company’s legitimate business interests.
- Consult with legal advisors about alternatives to non-competes, compliance considerations, and document review.
- Review our Client Alert of June 10, 2021 regarding new Illinois requirements that take effect on January 1, 2022.
Last Friday, President Biden signed Executive Order 14036, which calls for nationwide restrictions on the use of non-competes. According to the Administration Fact Sheet, the Order is intended to “promote competition in the American economy” by, among other things, “encouraging” the Federal Trade Commission (the “FTC”) to use its statutory rulemaking powers to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
The FTC enforces a broad range of antitrust and consumer protection laws that affect nearly every aspect of the American economy, although financial institutions, insurance companies, and certain common carriers are notable exceptions. The FTC’s principal source of authority is the Federal Trade Commission Act, which allows it to investigate and prohibit unfair methods of competition and unfair and deceptive practices, and also to implement industry-wide trade regulations defining which acts and practices are “unfair” or “deceptive.”
In recent years, the FTC has demonstrated an increased willingness to challenge restrictive covenants in transaction agreements. On April 13, 2020, the FTC’s Bureau of Competition, partnering with the Department of Justice’s Antitrust Division, issued a joint statement and press release regarding their efforts to monitor “competition in labor markets,” which efforts include challenging unlawful wage-fixing and no-poach agreements, anticompetitive non-compete agreements, and the unlawful exchange of competitively sensitive employee information. Any new rulemaking may build upon these existing enforcement efforts.
However, the Order merely encourages rulemaking without establishing parameters for any new rules (e.g., certain industries, salary thresholds, and other conditions). Accordingly, even if the FTC engages in rulemaking, the level of regulation it may pursue remains an open question. Any new federal restrictions would likely supplement, rather than replace, restrictions set forth in state law. For Illinois employers, these would be in addition to the restrictions summarized in our Client Alert of June 10, 2021, which will become effective on January 1, 2022.
Given the present uncertainty, now is a good time for companies to consider our earlier recommendations to (1) assess their non-compete practices and (2) begin to consider and identify alternative methods of protecting legitimate business interests. We will continue to monitor the issue and will follow up as additional information becomes available.
We Can Help You
Barack Ferrazzano’s Compensation & Employment Group has decades of experience in counseling companies about restrictive covenants and employee competition matters, and in helping companies navigate the maze of employment law compliance. Please contact us if you would like to discuss specific questions or if we can otherwise be of assistance.