Bringing on new staff (and starting a new job) is typically a hectic process. There is a ton of information to gather – in addition to acclimating to the requirements of the new job and beginning work. Many organizations require employees to sign various employment agreements at the start of their tenure. One such form of agreement – the non-competition agreement – has come under fire in recent years and is now the focal point of an Executive Order.
On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy. While it does not expressly make non-competitions illegal at the federal level, it signals increased scrutiny of such agreements across paygrades and industries. Key takeaways include:
- The Executive Order mandates that the Federal Trade Commission (FTC) other agencies (i.e., the “White House Competition Council”) review “the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” The FTC’s purview includes creating limitations on antitrust and unfair competition. The agencies are tasked with reviewing existing practices and creating their own rules to prevent unfair competition.
- The Executive Order seems to support the choice of many states to make non-competition agreements for low wage workers illegal. Locally, Maryland and Virginia have made non-competition agreements illegal for low wage workers in recent years (with DC completely outlawing non-competes this year). It is important to note that what constitutes “low wage” greatly varies – in Maryland, employees that make approximately $31,000 a year or less are within the ban, while Virginia’s “benchmark” is approximately $60,000. Employers should review the local law where the employee works (including telework) to ensure compliance.
- The Executive Order appears to make clear the federal government’s review of non-competition agreements may result in some form of prohibition or additional requirements for employers. With so many federal entities reviewing the issue (and many states already implementing their own limitations), non-competes seem to be on “thin ice.” That being said, they are still permissible in a variety of contexts. I recommend reviewing your current restrictive covenant agreements and revising them in advance of a severe policy mandate. Many agreements are written in an unreasonable manner, creating inherent problems for employers when employees leave (and in litigation).
Feel free to reach out to me to discuss your organization’s onboarding process and non-competition agreements.
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Theodora Stringham assists individuals, businesses, and organizations with growing successfully while minimizing liability. Focusing on real estate and personnel needs, Ms. Stringham executes sustainable plans for real estate development and employee matters. She provides comprehensive representation for everyday growth issues, including, but not limited to, re-zonings, site plan approvals, eminent domain/valuation concerns, employment discrimination, and disciplinary issues. Ms. Stringham’s scope of representation ranges from identifying potential liability and providing counseling/trainings, all the way through representation at trial.
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