Late last week, President Biden issued an executive order that made clear his administration will be scrutinizing noncompete agreements and viewing them unfavorably. The executive order encourages the Federal Trade Commission to ban or substantially limit noncompete agreements in employee contracts, citing a desire to increase competition among businesses as well as promote economic growth, innovation, and racial equality. In light of the executive order and the laws that many states have enacted recently regulating noncompetes, employers should familiarize themselves with the terms of their noncompete agreements and be strategic and thoughtful about whom they ask to sign them.

Historically, regulation of noncompete agreements has been left to the states. President Biden's executive order follows the recent trend among states that have enacted legislation in favor of employee mobility, hindering the enforcement of noncompete agreements. For example, earlier this year, the District of Columbia passed a law (D.C. Code §23-209) banning noncompete agreements that will become effective later this year when it is included in an approved district budget and financial plan. Washington, D.C. joins California (Cal. Business & Professions Code §§16600-16602.5), Oklahoma (OK Stat. §15-219A), and North Dakota (N.D. Cent. Code §9-08-06) as jurisdictions that generally will not enforce post-employment noncompete agreements, subject to certain limited exceptions. In 2020, Virginia (Va. Code §40.1-28.7:8) restricted the ability of employers to enforce noncompete agreements against employees who earn less than the average wage in that state, and Washington (RCW §§49.62.005-900) restricted noncompete agreements for employees who earn less than $100,000 per year. In 2019, Maine (Me. Rev. Stat. Ti. 26, c. 7, §599-A), New Hampshire (RSA §§275:70, 275:70-a), Rhode Island (R.I. Gen. Laws §§28-59-1-3), and Maryland (Md. Code, Lab. & Empl. §3-716) passed similar restrictions for employees who earn below a certain threshold. As states continue to enact noncompete legislation, employers should be aware that these laws will continue to limit their ability to impose post-employment restrictions.

Impact of Remote Work

Employers that required their employees to sign noncompete agreements before the pandemic clearly did not contemplate how many employees would rapidly and abruptly begin working from home because of COVID-19. The Bureau of Labor Statistics found that 35% of employed workers in the United States were working from home in May 2020—five times the number of employees estimated to have worked from home in 2019. Employers that allow employees to work a flexible schedule may continue to have employees working remotely into perpetuity.