A Look at the Future of Non-Competition Agreements - Practical Implications of the President's July 9, 2021 "Executive Order on Promoting Competition in the American Economy"
- posted: Jul. 14, 2021
On Friday, July 9, 2021, the President issued a new Executive Order addressing efforts to be made at the federal level to promote competition within our economy. While this Executive Order covers a range of efforts to increase competition and decrease corporate consolidation in many public and private sector industries, the Executive Order’s position on non-competition agreements and similar clauses in employment contracts is of particular interest to businesses and employees alike.
At the outset, it is important to understand that this Executive Order does not have any immediate impact on the status of non-competition agreements in Massachusetts. Massachusetts law already provides limitations on the scope of non-competition agreements and clauses for many of the same policy reasons set forth in the recent Executive Order. A brief review of the highlights of Massachusetts’ statute addressing non-competition agreements can be accessed in our prior newsletter by clicking here.
Rather than directly altering the existing laws, the Executive Order provides policy guidance from the President to federal agencies, and in particular the Federal Trade Commission (“FTC”), directing that those agencies exercise their regulatory and enforcement powers in ways that are consistent with the pro-competition goals outlined in the Order. With respect to the FTC, this means that the FTC is being directed to exercise its power in regulating trade to curtail the use of “unfair” non-competition agreements or clauses for any businesses that fall within the regulatory jurisdiction of the FTC. Other federal agencies are given less specific directives to exercise their power consistently with the policies set for the in the Order.
While recent news stories have framed the impact of this Executive Order as one that directs federal agencies to “ban or limit non-compete agreements”, the language of the Order itself does not set forth any language “banning” non-compete agreements. Instead, the order “encourages” the FTC to promulgate regulations under the Federal Trade Commission Act “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” 7/9/2021 Exec. Order §5(g).
Bottom Line: Nothing about this Executive Order changes the current legal status of non-compete agreements between employees and employers. While it may very well be that an outright ban could be one way for an agency to “curtail the unfair use of non-compete clauses”, the actual language of the Order leaves federal agencies with significant discretion in how to achieve the goal of curtailing unfair non-compete clauses in a more measured way. It will be important to monitor regulatory developments among federal agencies to learn more about any proposed rulemaking that could impact the validity of non-compete clauses and agreements in the future. The most important takeaway from this Executive Order is that it is a further signal that non-competition agreements are likely to have an increasingly limited future.
As always, if you or someone you know needs assistance with issues pertaining to non-competition agreements, please contact us. We would be happy to assist.