Biden Administration Considering Noncompete Restrictions

President-elect Joe Biden is reportedly considering significant restrictions, if not outright elimination, of noncompete clauses and no-poaching agreements.

A noncompete clause typically prevents a person whose employment at a company ends from working for a competitor of that company for a set period of time, usually one year.

No poaching is when two or more companies agree not to compete for each other’s employees, such as not recruiting them during their employment or not hiring them for a period of time after their employment ends.

No poaching agreements may also involve improper and possibly illegal understandings between companies to limit compensation, benefits or other terms of employment.

“As president, Biden will work with Congress to eliminate all noncompete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets, and outright ban all no-poaching agreements,” according to Biden’s campaign website.

Temporary Protection

Opponents of noncompete clauses say they reduce competition among businesses, slow workers’ job mobility, and suppress wages.

But proponents say noncompete clauses provide limited, temporary protection of employers’ legitimate business interests, including customer base and other confidential information.

Initially, the clauses were used to prevent high-level employees from taking trade secrets to rival businesses.

Proponents say noncompete clauses provide limited, temporary protection of employers’ legitimate business interests.

But they have since spread to low-wage and low-skill workers.

Connecticut lawmakers last year tried to pass a bill that would weaken noncompete agreements but the measure eventually failed.

Some believe it should be up to states to decide.

No-Poaching Agreements

Historically, no-poaching agreements haven’t been viewed as a political issue.

The tide began to turn in the fall of 2016 when the Obama administration asked states to ban noncompete and no-poaching agreements, saying it would lead to a more competitive labor market and faster wage growth.

The U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission released guidance to HR professionals, saying non-poaching agreements among employers are illegal per se under antitrust laws.

Historically, no-poaching agreements haven’t been viewed as a political issue.

Two years later, under the Trump Administration, DOJ filed an antitrust lawsuit against two of the world’s largest railroad equipment suppliers for a no-poaching agreement.

The settlement included an injunction that prohibited the defendants from entering no-poaching agreements with any company for seven years and required them to tell their employees of the companies’ obligations under the settlement.

Usage Restrictions

The FTC earlier this year was also considering restricting the use of noncompete clauses.

How one sees noncompete and no-poaching agreements is more likely a factor of which side of an agreement you’re on rather than whether they’re good or bad for business, CBIA’s Mark Soycher said.

The enforceability of non-competes has been a function of state law and state court decisions.

A business seeking to prevent an employee from taking skills, customer relationships, and related “proprietary” elements to a competitor may view a non-compete agreement as essential to survival. 

But an employer looking to hire a qualified applicant with good skills and industry contacts will likely see the agreement as a barrier to free-market negotiations and business growth.

Most often the enforceability of non-competes has been a function of state law and state court decisions.

National Standard

Some believe a uniform national standard could bring greater certainty to business operations and legal practices.

Others say the agreements may be practical when considering variations of local economies across the country.

Someone working in a major metropolitan area with many competing businesses may not have to relocate to find a job that doesn’t violate a noncompete agreement.

The prospect of a national standard banning agreements in all but limited situations should be a wakeup call for employers.

But the agreement could force someone living in a rural area to move their home and family in order to find a new job.

Soycher said the prospect of a national standard banning such agreements in all but limited situations should be a wakeup call for employers.

They should review their efforts to keep trade secrets secret—and any valuable company information including product formulations, customer lists, pricing, and marketing strategies, Soycher said.

Trade Secrets

Even without a noncompete agreement, a company may label and protect such valuable information/data as a trade secret under most state laws.

That way, a worker who decides to leave for a competitor may still be forbidden from trying to sell the former employer’s trade secrets to the highest bidder, Soycher said.

Businesses should have a discussion with their intellectual property legal counsel and IT consultant.

In the past, it was often only executive level employees who had access to such trade secrets, held in guarded documents or locked file cabinets. 

Now workers at any level may easily ship the treasured information or data to an outside destination with the push of the “send” button.

Soycher said business leaders should have a robust discussion with their intellectual property legal counsel and IT consultant to make sure effective measures remain in place, even if noncompetes become a thing of the past.

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For more information, contact CBIA’s Mark Soycher (860.244.1900) | @HRHotline