Part of the stated goal of the Order is to “make it easier to change jobs and help raise wages by banning or limiting non-compete agreements and unnecessary, cumbersome occupational licensing requirements that impede economic mobility”. The Order encourages the Federal Trade Commission (FTC) to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility”.
What the Executive Order Means to Employers
Currently, the enforceability of non-compete agreements is largely governed by state law, not federal law. The Order itself does not affect existing laws regarding enforceability of non-competition agreements, nor does it affect any existing agreements. Rather, the Order merely prompts the FTC to consider investigating the unfair use of non-compete clauses or agreements that may unfairly limit worker mobility.
This is not the first time that federal action has aimed to restrict non-compete agreements. In 2016, President Barack Obama issued an Executive Order to “address wage collusion, unnecessary non-compete agreements, and other anticompetitive practices,” and “to enact reforms to reduce the prevalence of non-compete agreements that are hurting workers and regional economies.” Likewise, bipartisan efforts in both chambers of Congress have attempted to limit non-compete agreements through proposed legislative action. Among the latest efforts is the Workforce Mobility Act, first introduced in 2019 by Sens. Chris Murphy (D-CT) and Todd Young (R-IN), which would largely eliminate the use of non-compete clauses in employment agreements save a few exceptions for partnership dissolutions and sales of businesses. The bill remains pending before the Senate Committee on Health, Education, Labor, and Pensions, and a similar bill in the House of Representatives has also stalled in committee.
It remains unclear what action the FTC will take, if any, in response to the latest Executive Order, especially in light of the inconsistent messaging it has received from the White House. Indeed, the Fact Sheet for the Order calls for the FTC to consider a “ban” on non-competes, but the Order simply calls for the FTC to limit their unfair use. Statements by the White House in the wake of the Order clarified that the Order is really aimed at preventing the use of non-competes with blue collar workers and low wage employees across the country.
Trends Regarding Non-Compete Agreement in the United States
The absence of federal law governing non-competes has resulted in a patchwork of state laws, with some states narrowly restricting the use of non-compete agreements while other states will readily enforce non-compete agreements to that extent they are reasonably necessary to protect legitimate business interests. For example, in California, employee non-compete provisions restricting post-employment conduct are generally void and unenforceable. Other states, notably North Dakota and Oklahoma, limit the use of non-compete clauses outside of the sale of business context. Various industries such as attorneys, physicians, and the financial industry are subject to specific restrictions as well. Finally, in a growing number of states, such as Illinois, Maine, Maryland, New Hampshire, Rhode Island, and Washington, employers are prohibited from using non-compete clauses with low-wage workers.
Non-Compete Laws in Ohio
Under Ohio law, non-compete provisions in employment contracts remain generally enforceable if they are “reasonable.” A non-competition clause in an employment contract is defined as reasonable, and thereby enforceable, if its restrictions:
- Are no greater than necessary to protect the employer’s legitimate business interests
- Do not impose undue hardship on the employee; and,
- Are not injurious to the public.
So long as an agreement falls within these guideposts, which heavily depends on the facts of each case, the agreement is likely to be enforceable under Ohio law. The geographic and temporal limits of a non-compete obligation are key factors in determining enforceability in Ohio and in many other states.
President Biden’s Executive Order does not affect existing law regarding non-competition agreements, but it does signify the latest attempt by the federal government to create a single, nationwide set of guidelines governing such agreements. Despite the rising trend within state and federal legislation to attempt to curtail or ban non-compete agreements, Ohio’s laws on such agreements remain unchanged. If you have any questions regarding your organization’s current non-compete agreements or how to create an effective agreement, please reach out to any KWW attorney.
As always, your workplace is our priority.