- mergers & acquisitions
- tax strategy
- real estate
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy (the “Order”). Among other things, the Order explains that almost 50 percent of private sector businesses use non-competes for their employees and encourages the Federal Trade Commission (“FTC”) to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” The Order does not take any direct action to limit the use or effectiveness of non-competes, and it remains to be seen what action the FTC will take in connection with these restrictive covenants, as they are generally governed by state law. While the Order does not provide clarity, the President has made public comments that indicate the FTC’s actions would be focused on lower paid and unskilled employees, but that could certainly change.
In recent years, some states have taken action to curtail the enforceability and effectiveness of non-competes. For example, in California, employee non-competes are unenforceable and against public policy. In Washington D.C., they recently passed a law that bans an employer from imposing any restrictions on an employee’s ability to engage in other employment during or after the employee’s employment with the employer, even if such activities would be considered competitive. Other states have imposed minimum salary thresholds or other minimum requirements on the enforceability of non-competes. While most states continue to allow non-competes for senior management and upon the sale of a business, there appears to be a trend by states to narrow the enforceability of non-competes, especially for lower wage employees.
Employers should review their non-compete agreements, especially non-competes that restrict lower wage employees from seeking employment with a competitor and make sure they continue to remain enforceable under the governing state law. Employers should also consider revising their agreements to focus more on non-solicitations of employees and customers of the Employer, as these generally are enforceable and provide protection against former employees poaching the employer’s customers and employees. Employers may also want to make sure they have strong confidentiality and non-disclosure agreements in place with employees to protect confidential information and trade secrets. If applicable, employers should also have work-for-hire and invention assignment agreements to make sure that the employers own and continue to own the intellectual property created by the employees. These agreements are usually considered more enforceable than non-competes, as they are narrowly drafted to protect the legitimate business interests of the employer and don’t impose limits on worker mobility.
For more information about employment law and corporate law issues surrounding restrictive covenants, including non-competes, please call Jason Schneider at Schneider Law Group at (919) 324-3600.
Schneider Law Group is a boutique business law firm in Raleigh, NC focused on general corporate law, mergers and acquisitions, securities law and tax strategy for growth-oriented businesses.