On July 9, 2021, Present Biden issued an executive order insisting upon aggressive enforcement of antitrust laws. In the order, the White House specifically targeted non-compete agreements and urged both the Federal Trade Commission (“FTC”) and Department of Justice to ban or at least limit their use. In recent years, roughly half of states have limited the enforceability of non-competes, with a few (including California) banning them entirely. Federal legislation or administrative regulations curbing the use of non-competes has been in the ether in Washington as well for years now, but all efforts to date have stalled.
That said, non-competes remain a serious problem for employees in the U.S. Millions of workers—per at least one report, nearly half of the American workforce—are subject to non-compete agreements restricting their ability to find new employment. As such, workers’ rights advocates have long urged the U.S. government to address this issue at the federal level, with many pinning their hopes on former public interest attorney, prominent Amazon critic, and current FTC Chairperson Lina Khan (“Khan”) to lead the charge.
Recently, Khan’s FTC has answered President Biden’s and others’ calls for action by announcing a wide-reaching proposed rule that would ban non-compete agreements nationwide. President Biden has repeatedly expressed the belief that non-competes stifle competition and depress wages, and the FTC estimates that its rule could increase wages by nearly $300 billion annually. As Khan explained: “The freedom to change jobs is core to economic liberty and to a competitive, thriving economy. Non-competes block workers from freely switching jobs, depriving them of higher wages and better working conditions, and depriving businesses of a talent pool that they need to build and expand. By ending this practice, FTC’s proposed rule would promote greater dynamism, innovation, and healthy competition.”
Further, the FTC’s proposed rule seemingly provides little, if any, room for employers to creatively work around it. While it does allow for an exception where a non-compete is “entered into by a person who is selling a business entity or otherwise disposing of all of the person’s ownership interest in the business entity, or by a person who is selling all or substantially all of a business entity’s operating assets,” the exception applies only to individuals with a “substantial” ownership stake.