As part of “a whole-of-government effort to promote competition in the American economy,” President Biden’s July 9 Executive Order on Promoting Competition in the American Economy encourages the Federal Trade Commission to ban or limit non-compete agreements. In doing so, President Biden continues — and potentially accelerates — what to date has been a piecemeal effort conducted almost exclusively at the state level to limit, and in some cases prohibit, the use of non-competes, particularly for low-wage workers.
If there was any question about whether there is a growing national trend to limit the enforceability of noncompetition agreements, 2019 settled the matter. Seven states enacted new statutes designed to limit the circumstances in which noncompetition agreements may be used. The Federal Trade Commission (FTC) announced that it is considering a regulation to restrict the use of noncompete clauses in employment agreements, and Republican lawmakers on Capitol Hill have held hearings and introduced legislation to create a federal ban on certain noncompete restrictions.
The following is a summary of the top 10 noncompete law developments of 2019. These developments reflect an ever-increasing hostility by lawmakers and courts toward noncompetition agreements. They also demonstrate the need for employers to stay current on the diverse state-specific limitations governing restrictive covenants, new federal activity in the area and ongoing case law developments. In light of this trend, national employers would do well to: be selective in identifying those categories of employees required to sign such agreements; narrowly tailor the scope of such agreements; and rely on choice-of-law and venue provisions, as allowed, to maximize the chances of enforceability.