The Biden Administration Attempts to Regulate Non-Compete Clauses

By Janean Dunn

In an effort to promote fair competition in the American economy, on July 9th, 2021, President Joe Biden signed Executive Order 14036 (Promoting Competition in the American Economy). The EO encourages the Federal Trade Commission (“FTC”) to engage in statutory rulemaking to curtail the unfair use of non-compete clauses.  Additionally, the EO includes 72 initiatives to address unfair competition across various industries, and the EO implores over 12 federal agencies to take action.  

The White House has opined that companies and corporations stifle competition in the labor market by including non-compete clauses within employment agreements. Recent statistics show that nearly half of American private-sector businesses require some of its employees to enter non-compete agreements, affecting between 36 to 60 million workers.  President Biden’s EO attempts to rectify this issue, by stating (in relevant part), 

Section 5. Further Agency Responsibilities. (a) The heads of all agencies shall consider using their authorities to further the policies set forth in section 1 of this order, with particular attention to:

  1. The influence of any of their respective regulations, particularly any licensing regulations, on concentration and competition in the industries under their jurisdiction; and 
  2. The potential for their procurement or other spending to improve the competitiveness of small businesses and businesses with fair labor practices 

(g) To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility. 

Further, President Biden indicated that EO 14036 reaffirms the policy stated in President Barack Obama’s Executive Order 13725 dated April 15, 2016 (Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy).  While EO 13725 did not expressly reference the curtailment of non-compete clauses, EO 13725 identified specific goals within 30 and 60 days of the EO’s effective date to ensure federal agencies took appropriate action.  Similar requirements are not present in EO 14036. Despite EO 14036 numerous initiatives, there is much to be desired in this EO, including specific requirements on federal agencies to comply with the EO. 

Indeed, the EO merely “encourages” the FTC to engage in rulemaking to curtail non-compete clauses. EO 14036 provides no incentive or repercussions to the FTC if it fails to act.  However, the FTC has demonstrated a willingness to consider rulemaking related to non-compete clauses. In January 2020, the FTC took steps to evaluate whether it should exercise its statutory authority to curtail or limit non-compete clauses in employment contracts.  The FTC’s efforts were triggered by the Petition for Rulemaking submitted by several labor organizations; however, further action from the FTC has not materialized.   With the added pressure from the Biden Administration, we anticipate the FTC may begin the rulemaking process to regulate non-compete clauses; however, the FTC may do nothing in response to EO 14036.  In the event that no action is taken by the FTC, President Biden may engage in a more aggressive exercise of executive authority to achieve his Administration’s agenda.