President Biden signs order to encourage curtailment of non-competes
October 1, 2021
President Biden recently announced Executive Order 14036, titled “Promoting Competition in the American Economy” which encourages the Federal Trade Commission (FTC) to create regulations that would “ban or limit non-compete agreements.” The Executive Order told the chair of the FTC 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.” Thus, the Executive Order does not actually create any bans or limitations in itself, but rather indicates that the FTC should review the issue. Within the order, the President cites an interest in promoting a competitive marketplace by protecting employees’ abilities to pursue higher-paying jobs.
FTC rulemaking subsequent to the Executive Order could significantly impact Pennsylvania non-compete law. Currently, in Pennsylvania, non-compete agreements are generally enforceable when they are narrowly crafted to reasonably protect legitimate business interests. Additionally, there must be adequate consideration when entering a non-compete agreement. In 2020, the Pennsylvania Supreme Court emphasized the importance of consideration in Rullex Co., LLC v. Tel-Stream, Inc. The Supreme Court ruled that an employee must show some manifestation of intent to be bound by a non-compete before their employment starts in order to make the non-compete enforceable. Otherwise, the employer must offer something in exchange (such as a bonus, a promotion, etc.) for agreement to the non-compete.
In the short-term, Pennsylvania law is unlikely to be impacted by the Executive Order. Looking further ahead, and depending on the scope of what the FTC might do, we may see a shift in the prevalence of non-competes in Pennsylvania and across the nation. The circumstances when non-competes can be used may narrow, and the requirements for enforcement may become stricter.
In the meantime, employers who want to protect the enforceability of non-compete agreements should review them and avoid the use of overbroad agreements that are not tailored to the specific needs of the business and the employee’s position. And, employees presented with a non-compete agreement when seeking employment or being presented a non-compete agreement during their employment should understand what they are agreeing to before they sign. Rothman Gordon’s employment lawyers can assist with problems in this area. You can contact us online or call us at (412) 338-1100.