Biden’s competition executive order takes aim at non-compete agreements

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Diving letter:

  • A Implementing ordinance of July 9th by President Joe Biden encourages the Federal Trade Commission to Prohibition or restriction of the use of non-compete obligations – also by private companies – as well as the application of “unnecessary restrictions on professional admission that impede economic mobility”, so a White House House fact sheet Published Friday.
  • The provision is part of a comprehensive guidance to federal agencies that targets barriers to economic competition in a variety of industries including healthcare, transportation, and the Fast food, among other. The White House said measures against non-compete agreements would make it easier for workers to change jobs while raising wages.
  • In addition, the order encourages the FTC and the US Department of Justice to strengthen antitrust guidelines to “prevent employers from working together to lower wages or reduce benefits by sharing wage and performance information.”

Dive Insight:

The fact sheet cited research from the Economic Policy Institute, a progressive think tank that found that almost half of companies in an EPI survey said at least some of their employees were required to agree to non-compete agreements. Almost a third of those surveyed stated that all employees in their companies are obliged to do so.

Although non-compete clauses have historically been associated with top employees, they were created and enforced for ordinary employees as well. A 2016 report Data released by the Treasury Department cited data showing that 15% of workers without a four-year college degree faced non-compete, as did 14% of workers who earn less than $ 40,000 a year. This new implementing regulation will make it easier for restaurant workers to change jobs without being exposed to legal restrictions such as: Reports from the gastronomy.

Most states allow some form of non-compete according to a running list Managed by the Boston-based law firm Beck Reed Riden. Others have passed laws restricting the use of non-compete agreements, including California, North Dakota, Montana, and Oklahoma. Washington, DC, signed its own restraint on non-compete in January, but the law went into effect is not yet clearthe District Attorney said.

According to the EPI report, non-compete agreements may still exist in jurisdictions that have enacted such laws, even if those agreements would not exist if challenged in state courts. That includes California, where the Treasury Department’s 2016 report found that 19% of the state’s employees were non-compete, a rate slightly above the national average.

Biden’s order leaves a few questions unanswered. It doesn’t prohibit or affect an existing employment contract, Chris Marquardt, partner at Alston & Bird, HR Dive said in an email. “Employers will have to wait and see what the FTC does in response to the executive order before considering the potential impact,” he said.

Among other things, intellectual property and trade secrets were cited as reasons for the non-competition clause. But the agreements have been criticized for potentially lowering wages in certain industries and geographic areas. When discussing the implementing regulation, Biden explicitly mentioned the problems of the non-competition clause in the catering trade.

“THere were clauses in McDonald’s contracts: You can’t leave Burger King to go to McDonald’s. Come on. Is there a trade secret what’s in that patty? “Biden said when signing the order on Friday.

For example, a 2019 scientific study of a non-compete ban for technology workers in Hawaii found the ban increased employee mobility by 11% and 4% increase in new hires. The same study found that workers in states with an average non-compete enforceability over eight years had 4.6% lower cumulative earnings and 8% fewer jobs than those in an unenforceable state.

Courts have also pointed out in recent years that non-compete obligations may be restricted in certain circumstances. For example, in a June 2020 decision, the U.S. First Appeals Court ruled that a pharmaceutical company could not prevail a 12-month non-competition clause against a dismissed and later reinstalled employee.

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