The federal government has increased its efforts to curtail the abuse of restrictive covenants such as non-compete agreements, non-solicitation agreements, and no-poaching agreements. In July of this year, President Biden signed the Executive Order on Promoting Competition in the American Economy, which encourages the Federal Trade Commission (FTC) to make use of its statutory rulemaking authority “to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
Federal agencies have already been utilizing antitrust and unfair competition laws to combat the abusive use of restrictive covenants. The Department of Justice (DOJ) and the FTC are the two federal agencies authorized to enforce antitrust laws. The two federal laws primarily used by these agencies are the Sherman Antitrust Act, 15 U.S.C. 1 et seq., and the Fair Trade Commission Act, 15 U.S.C. 41 et seq. The Sherman Act makes illegal contracts in “restraint of trade or commerce.” The Fair Trade Commission Act prohibits “unfair methods of competition” and “unfair or deceptive trade practices.” The Supreme Court has held that any violation of the Sherman Act necessarily violates the Fair Trade Commission Act.
The Department of Justice has been cracking down on the use of no-poaching agreements between competitors since 2010. The DOJ’s Antitrust Division has been prosecuting “horizontal” (i.e. agreements between competitors) no-poaching agreements under the Sherman Act. In September 2010, DOJ announced it had reached a settlement with several large technology companies who had agreed not to “poach” each other’s employees.
In October 2016, DOJ and the FTC issued joint guidance for human resource professionals instructing them that agreements between employers to not recruit certain employees or compete on compensation were per se illegal unless “reasonably necessary to a larger legitimate collaboration between the employers.” Being per se illegal means that no evidence of anticompetitive effect is needed to establish an antitrust violation. In its joint guidance, the FTC and the DOJ clarified that use of no-poaching agreements between legitimate joint venturers, or employers making shared use of facilities, are not per se illegal but must be tailored so that such agreements do only what is necessary to protect legitimate business interests.
Before becoming President Joe Biden made clear his desire to limit the use of non-compete agreements and other restrictive covenants which he viewed as a hindrance to competition and employee mobility. Thus, the signing of Executive Order 14036 in July of this year came as a surprise to few. What is interesting is that while the executive order refers only to the “unfair” use of non-compete agreements, the explanatory statement released by the Biden administration makes clear that “the President encourages the FTC to ban or limit non-compete agreements” altogether.
The President cannot take credit singlehandedly for bringing focus on the use of non-compete agreements. The restriction and legislation of non-compete agreements has been gaining traction around the country, with a number of states including Illinois restricting or outright banning the use of restrictive covenants. And despite the President’s encouragement for the FTC to exercise its rulemaking authority to curtail the use of non-compete agreements, employers should continue to look to state law when reviewing the legality and enforceability of their non-compete agreements. The administrative rulemaking process that will accompany any new regulations will take several months or even years.
Whether you are an employee being asked to sign a non-compete agreement or an employer needing a non-compete agreement or needing to see if your existing agreement is still valid, it is important to speak with an experienced restrictive covenant and non-compete agreement law attorney. It is no less important to have a skilled non-compete attorney at your side if you find yourself embroiled in litigation over the enforcement of a covenant not to compete, non-solicitation agreement, or nondisclosure agreement.
Super Lawyers named Illinois commercial law trial attorney Peter Lubin a Super Lawyer and Illinois business dispute attorney Patrick Austermuehle a Rising Star in the Categories of Business Litigation, Class Action, and Consumer Rights Litigation. Lubin Austermuehle’s Illinois business trial lawyers have over three decades of experience litigating emergency business litigation, non-compete agreement, intellectual property theft, and complex class-action lawsuits. Our Naperville and Winnetka business dispute lawyers handle emergency business lawsuits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist Chicago and Wheaton area businesses and business owners who are victims of fraud. You can contact us by calling 630-333-0333. You can also contact us online here.