Center On Executive Compensation
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President Biden Suggests Ban on Non-Competes

Published on: July 17, 2021

Topics: Corporate Governance, ESG and Diversity & Inclusion

President Biden’s recent Executive Order on Promoting Competition in the American Economy addressed several concerns with current labor market practices, including the use of non-compete agreements and employers’ ability to access wage data across markets. 

The administration is focusing on non-compete agreements due to concerns they are increasingly used to prevent employees from leaving for better jobs.  In the fact sheet, the President "encourages the FTC to ban or limit non-compete agreements" and to “strengthen antitrust guidance to prevent employers from collaborating to suppress wages or reduce benefits by sharing wage and benefit information with one another." The FTC is likely to take this up sooner rather than later, possibly by early fall.

Currently, non-compete agreements are required to be “reasonable in scope and duration,” but there is significant variance in their use from state to state. The trend at the state level has been toward greater restrictions on the use of non-compete agreements, such as in IllinoisClick here for more detail on the various state laws regulating non-compete agreements:
  • California, Oklahoma, North Dakota, and the District of Columbia prohibit them in nearly all cases;
  • Hawaii prohibits them for high-tech workers;
  • Illinois, Maryland, Massachusetts, New Hampshire, Maine, and Rhode Island have prohibited them for nonexempt employees or employees making less than $50,000 (the actual income level varies in each state);
  • Idaho does not prohibit them, but has shifted the burden of proof to the former employer to prove harm; and
  • Washington prohibits them for employees making less than $100,000.
Nearly 90% of respondents to the Center’s February 2020 survey indicated they utilized restrictive covenants including non-compete agreements. However, 40% of respondents noted that non-competes are only used for executives while another 25% indicated they are used for all equity recipients. 

In February, the Center submitted comments to the FTC highlighting the need for non-compete agreements for several classes of employees, including executives, employees in research & development, and employees with access to critical and/or sensitive trade information. The Center sought to draw a distinction between the use of non-competes for highly compensated and experienced employees and non-competes applied to entry-level or lower income employees. 

The Center is preparing its advocacy efforts regarding the new Executive Order and will look to engage with the FTC as soon as possible along similar lines.

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