Did the Biden Administration Just Outlaw Non-Compete Clauses?

President Biden signed an executive order calling for a ban on non-competition agreements in employment contracts and the FTC proposed a new rule to enact this change. Does this void existing non-competes?

United States White House.

(Updated January 9, 2023)

If you own a healthcare practice, you probably include non-competition clauses in your employee contracts. From your point of view, such clauses help you maintain a more stable workforce. They discourage your most valuable staff members from jumping to a competitor, taking the training, experience, and patient relationships they gained while on your team.

On the other hand, if you’re an employee who has signed a non-compete, you see things differently. A valid non-competition agreement holds you more closely to your job, even when better opportunities exist elsewhere. If you leave, you may have to wait before practicing your chosen profession in the geographic area where you currently work—possibly leaving you without an income longer than you can manage.

In short, employers like non-competition clauses and generally consider them to be fair and essential. But to employees, non-competes can feel like shackles that hold them back from making sensible career moves. 

The Current State of Non-Competes

A handful of states—most notably California—ban non-competition agreements. A few other states, such as Illinois, have limited their use. Nonetheless, non-competes remain legal, valid, and enforceable across most of the United States. According to the Economic Policy Institute, almost half of businesses include them in employment contracts, and 30-60 million Americans are working under such clauses.

At the federal level, President Joe Biden has taken a strong stance against non-competition clauses, issuing the Executive Order on Promoting Competition in the American Economy on July 9, 2021. The administration views non-competes as a tool for depressing wages, stifling innovation, and hindering U.S. productivity growth. Thus, the order calls for a ban on the practice or at least some limits.

Note that the executive order does not function as a sudden ban on the practice. Instead, the order is an aspirational policy directive to the relevant agency—in this case, the Federal Trade Commission (FTC)—responsible for enacting the change. On January 6, 2023, the FTC took the first step in its rulemaking process, issuing a proposed rule banning non-competes and inviting the public to submit comments.

Practical Implications of the Executive Order

So what does this mean if you are a party to an employment contract that includes a non-competition clause? Does this mean that employers can no longer enforce them? Can workers now tear up their agreements and go to work for rival practices down the street?

Federal agencies generally move slowly when implementing change. Plus, you can expect court challenges, as with many executive orders. Employers will inevitably push back on any ban on such a widespread practice.

For now, if you are an employee operating under a non-competition clause, don’t expect the status quo to change right away. Your employer can still pursue a lawsuit if you violate the agreement. It’s possible, though, that the executive order may soften their will to litigate in this less-certain environment.

Meanwhile, if you’re an employer, know that the terms of your current non-competes may become unenforceable in the future. You can still guard your healthcare practice’s interests in other ways, such as non-solicitation clauses and intellectual property protections.

How to Move Forward

Your attorney can help you keep your contracts up-to-date with current law. If you’re located in any of the states where we practice, our firm can develop employment contracts suited to the healthcare industry and the ever-changing legal environment.  Reach out for a free consultation.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader. It should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.

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