HR Legalist

Update: The Future of Non-Compete Agreements in 2022

With 2022 in full swing, it is time for employers to re-group and plan for the many uncertainties the future may hold. 2021 was a whirlwind year. From the turbulent landscape of vaccine mandates to the Biden Administration’s push towards employee and union-friendly policies, there is no sign of things slowing down. In addition to this tumultuous landscape, there will likely be significant activity in the world of non-compete agreements. Here is a look back at some developments in non-compete law in 2021, as well as predictions for the New Year.

In 2021, President Biden, in an effort to promote competition in the economy, issued an executive order directing 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 Biden Administration wants to limit non-compete agreements—especially those it feels are “unfair.” In his remarks, President Biden highlighted that non-compete agreements affect not only “high paid executives,” but low wage earners and those without college degrees. President Biden emphasized that these employees “should be free to take a better job if someone offers it.” The executive order issued by the Biden Administration encourages the FTC to utilize its rulemaking authority to ban or limit non-compete agreements in their entirety. The business community has opposed such drastic measures, and it remains unclear as to how the FTC will respond to this call to action by the President.  If the FTC chooses to implement a new rule, we can expect significant political and legal challenges to the FTC’s authority to enact such measures since this area of the law has traditionally been left up to the states.

In addition to the executive branch’s push towards more restrictive regulations on non-compete agreements, some states have amended their laws in order to protect employees—particularly low-wage earners. For example, Oregon and Illinois recently amended their non-compete statutes to prohibit non-competes for certain employees earning less than a designated amount. Nevada amended its non-compete law to restrict employers from entering into such agreements with employees who are paid solely on an hourly wage basis, exclusive of any tips or gratuities. The District of Columbia took this trend a step further by banning the use of non-compete agreements altogether. This law will be the strictest in the country when it goes into effect on April 1, 2022.

In the meantime, Congress has been unable to pass legislation restricting the use of non-compete agreements. The Freedom to Compete Act  (the “Act”) could potentially ban the use of non-compete agreements for all employees who are non-exempt under the Fair Labor Standards Act (“FLSA”).  However, the Act remains stalled in committee and would face an uncertain fate in the divided Senate.

In short, whether federal action regarding non-compete agreements is forthcoming remains uncertain. However, the state-by-state patchwork of laws limiting the enforceability of non-compete agreements and other restrictive covenants continues to pose potential challenges to employers. Employers should ensure that their current and future agreements provide adequate protections involving the usage and disclosure of trade secrets and other confidential information, as well as ensure that their agreements are compliant with relevant state laws and supported by adequate consideration where required by state law. HR Legalist will continue to track developments in state and federal non-compete law. As always, Obermayer’s Labor and Employment attorneys are prepared to answer any questions you may have regarding these important agreements and to help you comply with your state’s non-compete requirements.

The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.