Biden, Jimmy John's, Workforce Mobility Act, Congress, Non-Compete

Biden, Jimmy John's

President Biden’s Recent Executive Order Takes Aim At Non-Competes

President Biden's recent executive order takes aim at non-competes

7/17/2021 9:29:00 AM

President Biden 's recent executive order takes aim at non-competes

Non-competes are such a widespread problem for workers that President Biden campaigned back in 2020 about how he planned on eliminating many non-compete agreements.

IllinoisMany of these states won’t apply non-competes to workers paid on an hourly basis or who earn below a certain income threshold.More states are likely to restrict or prohibit the use of non-compete agreements, but progress will be slow. A new federal law would apply to every state and is the fastest way to protect workers as quickly and uniformly as possible. But given the current dynamic on Capitol Hill, President Biden decided the first step in combating the overuse of non-competes should be with an executive order. 

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ADVERTISEMENTPresident Biden’s July 9 2021 Executive OrderThe Executive Order on Promoting Competition in the American Economy (EO) represents a multi-pronged approach to encouraging greater competition in the U.S. economy in the hopes that it would help consumers, workers and businesses. It has provisions that address various economic concerns, including unfair data collection, right-to-repair laws, antitrust enforcement and occupational license restrictions. 

With respect to restricting the use of non-competes, the Section 5(g) of the EO asks the Federal Trade Commission (FTC) to use its regulatory authority under theFederal Trade Commission Actto “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

This isn’t the most specific set of instructions, although that’s probably deliberate. This gives the FTC some leeway in how it wants to tackle the problem of employers unreasonably and excessively using non-compete agreements.ADVERTISEMENTHowever, it’s unlikely that the FTC will issue a ban on non-competes in all situations and to all workers. By reading between the lines in this EO, it appears that President Biden isn’t against using non-compete agreements if doing so will reasonably protect businesses. 

The bottom line is that President Biden wants employers to stop abusing this restrictive covenant to harm workers. For instance, employers will sometimes use them with employees knowing full well they are unenforceable. Yet employers hope that they can scare workers into compliance.

Perhaps the FTC will reach some sort of compromise by only banning the use of non-compete clauses with workers who earn less than a certain amount of money. Another interesting thing about Section 5(g) of the EO is that it could potentially apply to other restrictive covenants, like non-solicitation and non-disclosure agreements.

ADVERTISEMENTCompanies and business groups are expected to challenge whatever regulation or rule the FTC creates. This opposition can take the form of litigation in federal courts, lobbying President Biden (or his successor) to revoke this EO, or Congress could pass a law statutorily protecting the use of non-compete clauses.

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The good news is that overall public sentiment is in favor of eliminating or restricting the use of non-compete agreements.  There’s also the fact that, at least on paper, there shouldn’t be that much political opposition to it.At its core, a non-compete agreement is about inhibiting free market forces. This is an idea that the Republican Party, at least in principle, has been traditionally against. But when it comes to the political landscape during the past few administrations, anything is possible. 

ADVERTISEMENTPerhaps that’s why there are still attempts by Congress to pass a law that would restrict the use of non-competes. One promising proposed law is the Workforce Mobility Act of 2021.The Workforce Mobility Act of 2021TheWorkforce Mobility Act of 2021

(WMA) has been introduced in both the House of Representatives and Senate with bipartisan support. If enacted, it would:Largely limit the use of non-competes to situations where there’s a sale of a business or dissolution of a partnership.Authorize the U.S. Department of Labor to take steps to educate the general public about the limitations surrounding the use of non-compete clauses.

Give workers a private right of action to sue for violations of the WMA.ADVERTISEMENTThis isn’t the first attempt by Congress to limit the use of non-compete clauses. Earlier proposed bills have been introduced, but have all failed. However, the recent attempts have occurred with a Republican in the White House and Republican control of the Senate. So depending on how President Biden’s EO is received by the American people, perhaps Congress could manage to pass the WMA.

The Bottom LineThe days of non-competes could be numbered. While their use may not be completely banned, continued limitations are likely from individual states, even without the help of President Biden’s EO. Read more: Forbes »

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