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New Executive Order Looking to Regulate Non-Competes

On July 9, 2021, President Biden issued a new “Executive Order on Promoting Competition in the American Economy.” He wants to make it “easier to change jobs and help raise wages by banning or limiting non-compete agreements” and to limit “unnecessary” licensing requirements that “impede economic mobility.”

He directed the creation of a White House Competition Council and asked federal regulators to address a variety of competition-related concerns. Within the order is a directive to the Federal Trade Commission (FTC) to initiate the process to ban or limit the use of non-compete agreements as a matter of federal law. Until the FTC begins its process, it is unknown whether all non-compete employee agreements will be banned or just certain categories of agreements, such as those impacting lower-income employees.

In January 2020, the FTC hosted a workshop exploring non-compete agreements, taking in diverse opinions. The FTC looked at both “why” it should regulate these types of agreements and also “how” it could act. No changes came as a result of that workshop. The typical federal agency rule-making process requires published notice of the new rule that includes a draft of the rule and gives reasons for proposing the new rule. Courts have upheld the legality of non-compete agreements under existing statutes. It is unclear whether the FTC holds sufficient authority to regulate this area of the law through rulemaking. Moreover, President Biden’s ability to create these types of laws through executive action, bypassing the legislative branch, may also be challenged.