Biden Issues Executive Order Targeting Unfair Use Of Non-Compete Clauses
On July 9, 2021, President Joe Biden issued an executive order aimed at curbing 72 business practices he deemed detrimental to fair market competition and to the rights of workers. One of these actions is the improper use of non-compete clauses, which are very prevalent in employment contracts. The text of the executive order has not yet been published, but according to the National Law Review, it authorizes the Federal Trade Commission to file for injunctions and impose financial penalties on companies whose offers of employment require employees to sign contracts that contain non-compete clauses where these clauses are not appropriate or necessary. Given that one third of businesses include non-compete clauses in their employment contracts and that 20 percent of workers without four-year university degrees have signed non-compete agreements at their current jobs, there is a good chance that your company is a party to a non-compete agreement, but in light of the new executive order, you may need to modify it soon. A Washington DC small business attorney can help you find alternatives to non-compete agreements or ensure that your non-compete agreements are enforceable under the new executive order.
When Are Non-Compete Clauses Appropriate?
Non-compete clauses in employment contracts prohibit the employee from setting up a new business to compete with the employer, or to seek employment with one of the employer’s direct competitors, after the employee’s job with the employer ends; they specify time limits are geographic limits for which the agreement is valid. The original purpose of non-compete agreements was for highly specialized jobs where an employee would learn a lot of information and skills that were not commonly known even to other people working in the same professional field; the agreement would prevent the employee from sharing this information with competing businesses. They are designed to protect proprietary information and know-how not eligible to be covered by patents and trademarks.
Biden has said that his executive order targets overreach by non-compete clauses. Many employers use them even when the employers have not taught their employees any skills beyond what they learned when becoming certified in their trade. Is it fair to hire an electrician only on the condition that, after he stops working for you, he cannot work as an electrician in Prince George’s County for two years? The worst non-compete clauses are “you’ll never work in this town again” agreements, and people sign them because they need the job.
Will Your Current Non-Compete Agreements Pass Muster in Biden’s America?
If your employees have signed non-compete agreements, review the agreements to see whether they are overly restrictive. If they are, amend them. In general, it is safe to prohibit employees from sharing client lists, but it is better to treat former employees as colleagues instead of potential competitors.
Reach Out to Us Today for Help
A business law attorney can help you draft employment contracts that protect your confidential information without restricting the rights of your employees. Contact Tobin, O’Connor & Ewing for help today.