Executive Order Targets Non-Compete Agreements

July 15, 2021 - Pierce T. MacLennan
President Biden recently signed an executive order asking the Federal Trade Commission (“FTC”) to ban or limit employer non-compete agreements. The Order is part of the Administration’s effort to shift power from management to workers and increase freedom of movement and promote higher wages.

Most companies in South Carolina and elsewhere currently utilize non-compete agreements with some of their workers, so the impact of such a ban would be massive. Currently, only three states have a ban on non-compete agreements. South Carolina is not one, although South Carolina courts disfavor their use unless carefully drafted and necessary for the business.

Whether this proposed ban will ever become a reality remains uncertain. First, the FTC will have to implement the ban and decide whether it applies only to low-wage workers or all workers, including those in high-level positions. Once implemented, the new rules will undoubtedly be subject to legal challenge. There is disagreement as to whether the FTC has the legal authority to enact such sweeping regulation.

Most policy experts agree that non-compete agreements with low-wage workers are harmful and unnecessary. From a legal perspective, those agreements are likely unenforceable in court. However, non-compete agreements with management employees serve important, protectable interests for companies.

Until a ban is enacted, we will continue to advise clients to utilize non-compete agreements under the right circumstances. The agreements should be carefully drafted with legal counsel in order to have the desired effect and protect the company’s interest.

Separately, efforts are underway to encourage state legislatures to adopt a new uniform act, which would permit restrictive covenants in employment agreements. HSB’s Clay Walker was Vice-Chair of the Uniform Law Commission committee that has worked on the uniform act. 

If you have questions about non-compete agreements or other employment law matters, please contact Perry or the HSB Employment Law team.