Will Biden Ban Non-Compete and Anti-Poaching Agreements?
March 25, 2021
Among the many disconcerting promises by President Biden is his wish to significantly reduce employers’ use of non-compete provisions, and to eliminate entirely the use of anti-poaching provisions in employment agreements. Previously, President Biden had voiced his desire to eliminate all non-compete agreements with few exceptions. Those exceptions were limited to protections needed to safeguard a company’s trade secrets.
Non-compete agreements, are simply that, agreements between workers and employers that restrict employees from leaving their current employer to join a competitor for some period of time and (usually) within some geographic range. Anti-poaching agreements are agreements among competitive employers promising not to hire the other’s employees.
Democrats have long believed non-compete and anti-poaching agreements restrict competition among businesses, limit employees’ job mobility and suppress wages. The concepts behind non-compete and anti-poaching agreements were originally used to block senior level and highly skilled workers from taking trade secrets to competitors. However, in recent years, the use of these provisions has significantly increased and now impact an alarming number of employees, including entry level and non-skilled workers. A 2019 study by the Economic Policy Institute estimated approximately 60 million private-sector workers in the U.S. are now subject to non-compete agreements.
How Will the Government Mandate this Change?
New laws to limit these restrictive contractual provisions could come from state or federal legislative actions, as well as new federal regulations.
In 2016, President Obama urged states to eliminate the use of non-compete and anti-poaching agreements by employers conducting business within their borders. President Obama called upon the states to push this initiative because he lacked the Congressional support to make change at the federal level. However, President Biden may have just enough votes to make this happen. With the runoff elections that took place in Georgia in January, the Democrats now have solid control of the House of Representatives and a razor thin majority in the Senate (since the Vice President can vote to break a tie). As a result, it would surprise few to see the Democratic Congress work with President Biden to push through this legislation.
Even if President Biden and the Democrats cannot overcome the Republican’s filibuster sized minority, employers can still expect change at the state level. Already states have started to follow California’s pro-employee lead which limited the use and reach of these types of provisions. One thing is for sure, even without new federal legislation, we can expect to see increasing limitations at the state level on which occupations are subject to non-competes and their geographic scope. The list of states that currently exercise such limitations includes California, Colorado, Florida, Hawaii, Illinois, Massachusetts, Texas, Utah, Virginia, and Washington.
A third path to change could be through Regulatory action. Some supporters believe should President Biden not be able to secure Congressional backing, he should seek to push his initiatives through the Federal Trade Commission (the “FTC”). It is argued the FTC could use its broad rule making authority to prohibit unfair or deceptive acts and unfair competition in order to eliminate anti-poaching provisions from employment agreements and to significantly restrict the use of non-competes.
Clearly, if the Democrats and President Biden get their way by eliminating anti-poaching agreements and significantly reducing the use of non-competes, many employers will be at significant risk of injury. In the blink of an eye and swipe of the pen, businesses could see their competitive advantages destroyed, customer relationships wiped out and confidential information literally walk out the front door.
While some companies have valid reasons for using non-compete and anti-poaching agreements, others do not; restrictions on low-level and/or unskilled workers seems unnecessary and raises the ire of opponents. A better approach is to restrict the use of such provisions where truly needed, so as not to risk having them banned altogether. Over the next few years we will see if the tide is strong enough to make a significant change in the use of such agreements.
Brody and Associates regularly advises management on complying with the latest state and federal employment laws. If we can be of assistance in this area, please contact us at firstname.lastname@example.org or 203.454.0560.