Federal Ban on Non Compete Agreements

Daryl has experience in managing all aspects of litigation, including the recording and defense of testimony, the practice of motions, pleadings and litigation. His practice focuses on defending employers in state and federal courts and administrative proceedings against complaints of discrimination, harassment, denunciation and retaliation, as well as violations of wage and working time laws. Have. Guy Brenner is a partner in the Labour Law Department and co-head of the Non-Compete & Trade Secrets group. He has extensive experience representing employers in individual and class actions, as well as arbitration. He also regularly assists federal government contractors with the many special employment-related compliance challenges they face. Robert Newman represents clients ranging from small employers to some of the largest employers in the country, including for-profit and tax-exempt businesses. His practice includes the design, design and modification of a wide range of pension plans (including 401(k) plans, ESOPs, and traditional and hybrid defined benefit plans) and social assistance plans (including health, severance and cafeteria plans); the creation of remuneration schemes for managers, including unqualified remuneration schemes, stock option schemes and other incentive schemes; Representing clients before the IRS and the Ministry of Labour; Assist clients with legislative initiatives; Provide performance expertise in corporate transactions and ERISA litigation; Advising clients on pension fund investments in private equity and hedge funds; and the negotiation and drafting of employment contracts. On July 9, 2021, the Biden administration issued a comprehensive executive order titled Promoting Competition in the U.S.

Economy (Order). Although it does not immediately change the current legal landscape to restrict no obligations. B competition (or other aspects of U.S. antitrust enforcement), the order encourages the Federal Trade Commission (FTC) to “restrict the unfair use of non-compete obligations and other clauses or agreements that may unfairly restrict worker mobility.” As a result of the settlement and other calls for stronger enforcement of the non-compete obligation for employees and similar restrictive agreements, many business stakeholders are questioning whether federal action against non-compete obligations is imminent. We will address this issue below and discuss the measures that employers should consider given the potential changes to come. Which workers are exempt or unprotected under the new law? All non-compete obligations are null and void under the new law, except for those that are binding: According to NPR, “The White House estimates that about half of private sector companies use non-compete obligations for at least some of their employees, affecting between 36 and 60 million workers. The figures come from a 2019 report by the Left-Wing Economic Policy Institute that surveyed 634 employers. Some States have already banned such agreements.

“The Order in Council is the only federal measure I know of that would affect non-compete obligations. Most are controlled by the state,” he said. Regardless, the Biden administration has made it clear that it wants the federal government to join the growing number of states that are waging war on non-compete obligations. On July 9, 2021, President Biden signed the Executive Order to Promote Competition in the U.S. Economy (the “Order”), a copy of which is available here. The Order contains a variety of proposals to “promote competition and innovation by small and large businesses at home and around the world.” The order includes a stated effort by the Biden administration to prohibit or severely restrict the use of non-compete obligations. Historically, non-compete obligations have been regulated by the states, not the federal government. About 47 states more or less allow the use of non-compete obligations. Three states – California, North Dakota and Oklahoma – and the District of Columbia largely prohibit non-compete obligations. Nearly a dozen states prohibit or severely restrict the application of non-compete clauses with low-wage workers. Illinois, Oregon, Nevada and Virginia have recently joined this group. Carson Sullivan, Paul Hastings` lawyer in Washington, D.C., said there is a lot of debate about what the executive order means for non-competitors.

“We really can`t say how broad the ban will be,” she said, although she noted that the order focused on the “unfair” use of non-compete obligations and other agreements that restrict employee mobility. Dolghih noted: “Many companies rely on non-compete clauses to protect their legitimate business interests. This includes protecting the confidentiality of trade secrets, preserving customer goodwill, and protecting investments in employee education and training. Employers typically use non-compete obligations to protect their proprietary information by preventing employees from working for competitors in a specific geographic area for a limited period of time. But such agreements, especially with low-income people in retail and gastronomy, have been scrutinized in recent years. Given the new executive order, it seems unlikely that the FTC will decide to do nothing. On the other hand, it would be a radical and hotly contested measure for the Commission to oust State law and completely prohibit non-compete obligations. What seems most likely is a series of reforms such as those described above, which would have an impact while most of the state`s existing laws would remain in force.

Employers need to prepare accordingly. Employers may also consider using non-disclosure or confidentiality agreements to protect their trade secrets and proprietary information. To stay ahead of the curve, Nadler said, employers should reassess whether non-compete obligations are necessary or whether legitimate concerns about protecting certain employees` confidential information can be addressed through other means, such as non-compliance agreements, that are more likely to stand up to scrutiny. The idea that the FTC restricts non-compete obligations is not new. It circulated under the Obama administration and was researched during the Trump administration. In January 2020, the FTC held a public workshop to examine whether there is a sufficient legal basis and empirical economic support to adopt a rule that would restrict the use of non-compete obligations. It then invited interested parties to submit public comments on a number of issues relating to this issue. “Given that the direction of the executive order appears to protect the ability of low-wage workers to receive higher wages and better working conditions, banning non-competition with low-wage workers may be the best approach for the FTC,” Mirsky said. When employers await instructions from the federal government, they should note that the applicability of non-compete obligations is generally assessed under state laws. And these laws vary widely.

It is also possible that the FTC`s order and corresponding rule may be subject to legal review, including constitutional challenges. Non-compete obligations have historically been subject to State law. Many states have laws that govern the legal use of non-compete obligations and other restrictive agreements. Other states have decades of common law jurisprudence from state courts that deal directly with the applicability of restrictive agreements. Thus, if no federal law expressly prejudges state law, there may be legal challenges that claim constitutional interference and overextension by the executive. In this episode of The Proskauer Brief, we are joined by Guy Brenner, Partner, who leads Proskauer.C. Employment Law practice and leads our Non-Competition and Trade Secrets practice group, and Daryl Leon, a partner in Proskauer`s New York office and a senior member of the firm`s Non-Competition and Trade Secrets practice group. Listen to the opportunity to discuss the “Prohibition of Non-Competition Agreements Amendment Act, 2020,” a law that is expected to come into force in our country`s capital in 2022. The law essentially prohibits all employers from entering into agreements that prohibit their employees working in D.C.

from working for other employers or running their own business. It`s hard to say. The Ordinance does not affect the applicable law, which governs non-compete obligations and similar restrictive agreements. And while the Order is bold in its proclamation, it is vague in the details. It`s unclear whether the FTC or other federal agencies will introduce new rules to regulate non-compete obligations and similar restrictive agreements. With or without new regulations, the FTC (and the DEPARTMENT) could devote more resources to reviewing non-compete obligations and other agreements considered a restriction of competition for workers, and could potentially expand the circumstances in which such agreements are considered anti-competitive. Given the continued calls by some antitrust authorities to apply federal antitrust laws more broadly and strictly to non-compete obligations and similar restrictive covenants, the FTC and DOJ may also consider revising the Joint Antitrust Guidelines for Human Resources Professionals to directly address non-compete obligations and other restrictive agreements in agreements. employer-employee. . . .