A bipartisan, bicameral proposal that would prohibit the use of noncompete provisions in employment agreements is garnering the attention of lawmakers, setting the stage for legislative action next year. Meanwhile, the FTC is likely to issue proposed rules on noncompete agreements sometime this summer or fall.
The Workforce Mobility Act (S. 483/H.R. 1367) prohibits the use of noncompete agreements except in cases where a business is sold or in partnership dissolution situations. In addition, the bill places enforcement responsibility on the Federal Trade Commission (FTC) and the Department of Labor (DOL) while including a private right of action.
Impact on common employer practices: As written, the measure contains no exemptions except in the above-mentioned asset sale or transfer contexts. Although the bill does allow for agreements forbidding the sharing of “trade secrets,” these can be very difficult to enforce.
Last year, President Biden issued Executive Order 14036 stating that noncompete agreements are a “barrier to competition.” The FTC is directed to issue regulations to “limit or ban noncompete agreements.” Several states and localities have banned such agreements, including CA, ND, OK, and DC, while others, such as IL, MD, and MA, have restrictions on their use for lower income employees.
The FTC has avoided commenting publicly on where it might consider noncompetes reasonable (high-level executives, for example), but conversations have indicated an understanding that there are cases where such agreements are appropriate. However, the proposed rule remains to be seen.
HR Policy Association’s Center On Executive Compensation submitted comments to the FTC on the legitimate business use of noncompete agreements, including for executives and employees with access to proprietary and sensitive information.
The FTC will likely issue its proposed rules on noncompete agreements following the final confirmation of Alvaro Bedoya to the five-member Commission, which would establish a Democratic majority (currently the four commissioners are evenly split along party affiliations). In addition, the Senate Health, Education, Labor, and Pensions Committee will likely hold a hearing on the use of noncompete agreements, including the Workforce Mobility Act, later this spring or summer.
Outlook: The impact of noncompete agreements on competition in the labor market remains a top priority of the Biden administration. Employers should expect legislative attention and regulatory action this year. HR Policy Association will continue to inform policymakers on the legitimate business use of noncompete agreements and will advocate against proposals to limit and/or ban such uses.
