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Jul 14, 2021
This article is part of a series called The Legal Lounge.

Remember four months ago (also known as eons), this column mentioned President Biden’s desire for a nationwide ban on noncompetition agreements? Well, we’re getting a smidge closer. Last week, the President issued a new executive order designed to put into place rules that could — could — get closer to that goal.

The order starts out with the basic theory of our capitalist economy: 

“A fair, open, and competitive marketplace has long been a cornerstone of the American economy, while excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers.”

The theory being that if a worker’s ability to sell their labor across all competitors is compromised, the competition that makes our country great is hampered, hurting consumers, and by extension all of us. To further this theory, the order puts it into action: It requires the Federal Trade Commission (FtC) to issue new rules on anti-competitive behavior, including curtailing “the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

Notably, we have no idea what the new rules will be. Will they be similar to the state of Washington’s prohibitions that limit noncompetition-agreement use to only employees making more than $101,390? Maybe. Will they outright prohibit agreements like California and North Dakota have done? Maybe. We simply do not know.

But we do know that the process to enact the rules will be long. Every side of this issue (and there are many when it comes to noncompetes) will get to present their arguments to the FTC in an effort to influence the rules. Then the FTC will publish the rule for public comment. After that, it will issue a final rule that will go into effect at some point. 

While we wait, recruiters should start preparing their own organizations for a change in how noncompetition agreements are handled. Here are some questions to think about and pose to management:

  1. What are we trying to protect? If the organization is trying to protect confidential or trade secrets, ask if a confidentiality agreement is sufficient. If the company is trying to protect its goodwill with customers, ask if a non-solicitation agreement will work. In some circumstances (not all), these agreements might provide the kind of protection necessary. Candidates, judges, and juries understand the need to protect these sorts of interests. They are an easier sell and often are more likely to be enforced.
  2. What happens when we lose a candidate over a noncompetition agreement? It is likely that candidates will push back if they learn that such a noncompete is a requirement. Recruiters should be prepared to handle and discuss with hiring managers this possibility, especially if it is with a top candidate who was difficult to recruit in the first place. 
  3. Do we want to start an employment relationship off by talking about its end? With difficulties in recruiting, an organization starts off a new relationship with an employee on a strange foot by talking about the end of it. It’s possible that when the individual is promoted or selected for a large discretionary bonus, that could be a better time to put a noncompetition agreement into place. (Please note that the some mid-employment noncompetes will not be enforceable unless accompanied by a promotion or bonus.)

Even though so much is still up in the air with this executive order, it is best to start preparing and contemplating an organization’s options. Asking for forgiveness later is not a good option when talking about FTC regulations.

This article is part of a series called The Legal Lounge.
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