BECOMING MORE LIKE CALIFORNIA? A POTENTIAL NATIONAL MOVEMENT TOWARDS RESTRICTING THE USE OF NON-COMPETES
Orrick, Herrington, & Sutcliffe LLP
California has long been the forefront of promoting employee mobility through Business & Professions Code Section 16600, which states that except under limited circumstances, "every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void."1 While California was long an outlier in terms of restricting the use of non-competes, the rest of the nation may now be moving more in line with Californiaâled by President Biden’s Administration.
In July 2021, President Biden issued an executive order directing the FTC to ban or limit non-compete agreements.2 In his remarks, President Biden called out how non-competes are not just limited to "high-paid executives or scientists who hold the secret formulas for Coco-Cola" but that a "recent study found one in five workers without a college education is subject to non-compete agreements."3 President Biden further expressed concern that the non-competes disproportionately impact women and women of color.
In December 2021, the DOJ and FTC met for a two-day workshop to discuss how to execute President Biden’s Executive Order and competition issues in the labor market.4 Public comments were solicited. Regarding non-competes, there was discussion about both its positive and negative impacts. Clearly the administration has been focused on the negative impact of non-competes, arguing that these non-competes suppress wage growth for workers. However, the positive impact from non-competes is the protection of confidential and proprietary information, which are legitimate concerns for companies. The FTC has not yet acted in promulgating any new rules; it will be interesting to see whether 2022 will be the year where non-competes are significantly curtailed, or if it will be more of the same. Congress has previously tried to pass federal bills