Russell Beck in Lawyers Weekly on Federal Action on Noncompete Agreements

Russell Beck‘s article about President Biden’s recent Executive Order on noncompete agreements was recently published by Massachusetts Lawyers Weekly.

Russell’s article, titled “The ‘Great Resignation,’ departing employees and new federal efforts to restrict noncompetes,” discusses President Biden’s order encouraging the FTC to exercise its rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” In addition, the article suggests practical steps companies should consider to protect their business interests in light of the recent Executive Order.

According to the article,

The Great Resignation is coming. Unprecedented numbers of employees are expected to change jobs, and more than half of them will take confidential company information. Worse, 40 percent of them will use that information at their new job.

Companies frequently protect their trade secrets from this type of exfiltration with narrowly tailored noncompetes that prevent employees from taking jobs in which they are likely to use their former employer’s confidential information. These agreements are an important part of an effective trade secret protection program.

However, on July 9, President Biden issued an “Executive Order on Promoting Competition in the American Economy” calling for the Federal Trade Commission to “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

he article provides an overview of recent state and federal efforts to regulate the use of non-compete agreements. The current status of non-competition agreements is as follows:

Although states have, for the most part, been imposing various wage thresholds and notice requirements, the federal government has not yet taken action. Congress has not voted to ban noncompetes. Biden did not ban noncompetes though his executive order. And the FTC has not banned noncompetes. But they may.

The article concludes with suggestions for practical steps that companies can take now to prepare for federal regulation of noncompete agreements:

First, if you want to be heard, reach out to the FTC and Congress.

Second, review all existing restrictive covenants, whether contained in employment agreements, RSU agreements, stock option agreements, long-term incentive agreements, or other agreements.

Also, review and strengthen as appropriate all policies and codes of conduct. But be mindful of other applicable laws, including, for example, D.C.’s forthcoming prohibitions on anti-moonlighting requirements.

Third, make sure that there is a culture of confidentiality at your clients’ companies. That is not to say that all information needs to be locked down. There is always a balance. If information is locked down too tightly, work becomes less efficient and people will find workarounds, likely resulting in even less security for the information.

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For up-to-the-minute analysis of legal issues concerning noncompete agreements in Massachusetts and across the United States, read Russell Beck’s blog, Fair Competition Law.