A topic almost every attorneys is following closely is the state of non-competes and other “anti-competitive” restrictive covenants. Not familiar? Here’s a refresher and the current state of affairs.
That’s jump back to 2021. President Biden issued an Executive Order on Promoting Competition in the American Economy. This Executive Order promised the administration’s enforcement of antitrust laws “to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly.” One of the primary goals of this Executive Order was to “make it easier to change jobs and help raise wages by banning or limiting non-compete agreements.”
To that end, the Executive Order established 72 initiatives by multiple federal agencies to promote competition in the American economy. This Executive Order initiated an ongoing crackdown on anti-competitive activity.
The Fall of Non-competes
Things started to heat up in early 2023. On January 5, 2023, the Federal Trade Commission announced a proposed a new rule that would ban employers from imposing non-competes on their workers. You read that right—— a ban on non-competes. In short, the proposed rule would make it illegal for an employer to:
- enter into or attempt to enter into a noncompete with a worker;
- maintain a noncompete with a worker; or
- represent to a worker, under certain circumstances, that the worker is subject to a noncompete.
Comments were then solicited from the public. Interestingly, as of the date of this article, no final rule has been published.
National Labor Relations Board Memo
Another agency joined the fray in May of 2023. The National Labor Relations Board General Counsel Jennifer Abruzzo announced via memo her opinion that enforcement of non-compete provisions in employment contracts and service agreements was a violation of the National Labor Relations Act (except in certain exceptional circumstances). Needless to say this was a big deal.
While ceding that in some cases non-compete provisions may be lawful if they restrict only managerial or ownership interests in competing business, Abruzzo argued that non-compete provisions are often too broad and thus “chill employees in the exercise of [NLRA] Section 7 rights when the provisions could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities.”
While the FTC final rule (see above) has not been published/approved, some states already have bans on non-competes in place. Currently five states ban non-competes, California, Colorado, Minnesota, North Dakota and Oklahoma.
Expect more state level bans and a final FTC rule to come out soon.