Just this month, President Joe Biden signed a major executive order limiting the use of non-compete agreements. Executive Order 14036, “Promoting Competition in the American Economy,” encourages the FTC to crack down on the “unfair use” of such agreements.
The executive order helps workers. But what about businesses that rely on non-competes to keep employees from taking their trade secrets to competitors? Half of private-sector businesses use non-compete agreements for at least some of their employees.
Non-compete clauses are a helpful tool for businesses to limit where their employees can go after their employment ends. The new executive order puts the future of these types of agreements in question – and it doesn’t stop there.
In fact, Executive Order 14036 allows the FTC to also examine “other clauses or agreements that may unfairly limit worker mobility,” such as nondisclosure agreements, non-solicitation agreements, and no-poaching agreements. All tools that businesses use to protect their intellectual property, trade secrets, client relationships, and other sensitive information.
Losing these tools can leave businesses more vulnerable to competitors. If your business uses any of these restrictive employee agreements, it may be time to take a look at your paperwork.
Are Non-Compete Agreements Unenforceable Now?
No. Biden’s new executive order doesn’t change the law around restrictive employee agreements. It simply encourages the Federal Trade Commission to take action.
The executive order gives the FTC rulemaking authority around non-compete agreements. But the process to actually make new, legally binding rules would likely take years.
Agencies like the FTC must go through an official rulemaking process with multiple steps before new regulations can go into effect. Usually, the agency must at least:
However, it’s important that the executive order specifically calls out the unfair use of restrictive employee agreements. If only the unfair agreements will be targeted by new regulations, that leaves “fair” non-compete agreements as, well, fair game.
As a business, you want to prepare in advance for any regulations that might come your way. That means making sure all of your restrictive employee agreements are fair and robust.
The best way to ensure your employee non-competes will stand the test of time is to get professional help drafting them. That’s where a business lawyer comes in.
What Are the Types of Restrictive Employee Covenants?
Restrictive employee covenants are common in almost all industries. Employees often sign as a part of the onboarding process. The terms usually apply for as long as the worker is employed at your company, plus a certain period of time after their employment ends.
The legalities can get complicated, which is why it’s best to consult with a business lawyer about how to proceed. The risks are too great to proceed without professional help.
How to Properly Prepare Restrictive Employee Agreements
Whatever restrictive covenants you need, you must take care to make them enforceable under the law. That involves tailoring the restrictions based on your company’s actual needs. In addition, you may also have to consider state laws where your employees live.
The worst mistake would be to get a template non-compete agreement, such as from an online search. These templates are often far too broad in scope, risking the legitimacy of the whole document. If the agreement can’t be enforced, it’s worthless. Even worse – you thought you were protected under the law, but you find out after the fact that you’re not.
To ensure that your restrictive covenants are actually enforceable:
In order for the terms of your restrictive covenants to be fair, they must usually be reasonable in geographic scope and duration. For example, it doesn’t make sense for your non-compete clause to cover the entire country if your business only operates in a single city or state. Some states have strict time limits on the duration of non-compete clauses. In New Jersey, the time limit is no longer than 12 months after the end of employment.
In addition to federal, state, and local laws, you must also take into consideration industry-specific fair competition and anti-monopoly laws. A business attorney can help. Call Holmes Business Law now at 215-482-0285 to get your business set up right.
Sarah E. Holmes is a Philadelphia business attorney and strategist that helps start ups and established businesses looking to expand, protect their assets and increase their profits in an approachable, down-to-earth way. When you're looking for a business lawyer in Philadelphia, the Main Line or New Jersey, we can help.