Trade Secrets & Employee Mobility

Perhaps we were wrong. Or perhaps we were just not thinking creatively enough. After President Biden issued his “Executive Order on Promoting Competition in the American Economy,” in which he “encourage[d]” the Federal Trade Commission (FTC) to “consider” exercising its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” we assumed that Lina Khan, the 33-year-old Biden-appointed Chair of the FTC (and a vocal opponent of noncompetes), would take the torch and propose a Rule prohibiting, or at the very least severely limiting, the use of noncompetes. And she may still do so.

According to a report in the Wall Street Journal last week, the Federal Trade Commission is considering new regulations to prohibit the use of noncompetes and to target their use in individual cases through enforcement actions. Although President Biden issued a vague Executive Order early in his administration that “encourage[d]” the FTC to “consider” exercising its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” no concrete action has been taken to date. That is not entirely surprising given that, until last month, the Commission was split 2-2 along partisan lines. What has since changed that may now make federal noncompete regulation a real possibility, however, is the appointment last month of Alvaro Bedoya to the FTC, giving the Democrats a 3-2 majority.

Lina Khan, the 33-year-old Biden-appointed Chair of the FTC, told the Wall Street Journal, “We feel an enormous amount of urgency given how much harm is happening against the workers. This is the type of practice that falls squarely in our wheelhouse.” Other Commissioners disagree. Commissioner Noah Phillips has said the agency doesn’t have legal authority to impose such rules, and Commissioner Christine Wilson said last year it was “premature” to pass a federal rule because many states had taken their own actions to address noncompetes. Indeed, noncompete regulation has been the province of the states for over 200 years.

On July 9, 2021, President Biden signed the Executive Order on Promoting Competition in the American Economy, which encourages the Federal Trade Commission (“FTC”) to employ its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”  Executive Order, Section 5(g).  While the language in the Executive Order refers to the “unfair” use of non-compete clauses, the Administration’s explanatory statement makes clear that “the President encourages the FTC to ban or ...