Monday, July 12, 2021

You don’t need to wait for President Biden to fix what’s wrong with non-compete agreements

On Friday, President Biden signed an Executive Order on Promoting Competition in the American Economy. According to the Order, its goal is to promote a "fair, open, and competitive marketplace" and "the welfare of workers, farmers, small businesses, startups, and consumers" through the elimination or limitation of "excessive market concentration," which "threatens basic economic liberties, democratic accountability." One of the President's targets is "companies [that] require workers to sign non-compete agreements that restrict their ability to change jobs." Indeed, according to the President, half of private-sector businesses require at least some employees to enter non-compete agreements, affecting some 36 to 60 million workers.

Thus, President Biden ordered "the Chair of the FTC … to consider working with the rest of the Commission to exercise the FTC's statutory rulemaking authority … to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility."

Here's the thing. You don't have to wait for the FTC to act for your business to limit how you are using non-compete agreements, which too many employers use way too broadly. Legally speaking, to be enforceable such an agreement must be narrowly tailored to the legitimate business interest you are trying to protect. Yet, all too often employers require many too many employees to sign overly broad and restrictive non-compete agreements. Instead, you should be limiting the agreement's reach to the bona fide concerns you are trying to address.

  • Are you worried about protecting confidential information? In that case, maybe a non-disclosure agreement is all you need.
  • Are you worried about an employee poaching customers, employees, or vendors? Then a non-solicit is in order (plus the non-disclosure).
  • Or, is what an employee provides so unique in nature that you genuinely will be irreparably harmed by the employee jumping to a competitor. Then, and only then, is a broad non-competition agreement called for (plus the non-disclosure and non-solicit).

Employers, use some discretion and common sense. Narrowly tailor your restrictive-covenant agreements to the specific interest(s) you are trying to protect. And, if you don't have such an interest, forego the agreement altogether for that employee or group of employees. Otherwise, you will spend oodles of money attempting to enforce an unenforceable agreement. While that strategy is great for me, it's terrible for your business, which should be in the business of making money, not throwing it away chasing a fool's errand.