The Uncertain Future of Non-Competes After President Biden’s July 2021 Executive Order

Written by: Allison Averbuch, Esq. and Baylee Culverhouse, Esq.

In July 2021, President Biden issued a comprehensive Executive Order to tackle “the most pressing competition problems” facing the country’s economy.[1] The Order includes 72 initiatives aimed at promoting competition—one of which encourages the Chair of the Federal Trade Commission (FTC) “to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”[2] According to the Fact Sheet accompanying President Biden’s Order, roughly half of all private-sector businesses require at least some of their employees to sign non-compete agreements—a requirement that affects between 36 to 60 million American workers, including those in construction and retail.[3]

President Biden’s Executive Order does not alter the law of non-compete agreements. It instead encourages the FTC to act. The Order, however, has created some uncertainty for employers because it provides little guidance on how the FTC should move forward. It is unclear whether the Order encourages banning non-compete agreements entirely or only the unfair use of non-compete agreements. Although the language of the Order itself encourages the FTC to restrict the unfair use of non-compete agreements, for example, the Fact Sheet accompanying the Order mentions “banning or limiting” the agreements altogether.[4]

If the FTC issues regulations governing non-competes, it would be a departure from the current non-compete regime governed by state law. For now, under Georgia law, courts will enforce non-compete agreements entered into on or after May 11, 2011, if the party seeking enforcement of the agreement shows the reasonableness of the restrictions and “the existence of one or more legitimate business interests justifying the restrictive covenant.”[5] In examining reasonableness, courts look at the time, geographic area, and scope of the prohibited activity.[6] For non-compete agreements entered into before May 11, 2011, the employer has the burden to prove the reasonableness of the provision.[7]

Before considering whether a non-compete would be upheld in a Georgia court, an employer should first ask whether a non-compete is appropriate for the role in question. In doing so, the employer should consider a number of issues:

• • Seniority/experience level of employee: A non-compete for a senior executive with substantial access to proprietary business information is going to appear more reasonable than one for an entry-level employee with little knowledge of trade secrets.
  • Nature of employee’s role: Consider limiting non-competes to employees innovating on the company’s behalf like scientists, engineers, or software developers.
  • Employee’s contact with clients: A non-compete for a sales employee that works with the same repeat customers with whom she has developed relationships may be more reasonable that one for a customer service representative who only has brief interactions with many company customers.

An employer may also want to consider whether a more tailored type of restrictive covenant—like a non-solicitation-of-customers agreement—would accomplish its goals better than a non-compete would. A non-solicitation agreement, for example, may be enforceable to prevent the salesperson from taking a customer list to a different employer, while a court may decline to enforce a broader agreement restricting the salesperson from other sales roles as overbroad. And the non-solicitation agreement in this context would accomplish the employer’s goal by prohibiting that employee from soliciting company customers in a new role for a period following separation.

Similarly, a non-solicitation-of-employees agreement may be better than a non-compete for a managerial employee. This type of agreement would be a good fit for a business where employees are highly trained and retraining new employees would be costly and time consuming. Under this type of agreement, the departing employee would be prohibited from recruiting or hiring company employees for a set period after leaving the company.

In the midst of a nationwide labor shortage and record job turnover, employers should also consider the practical implications of asking employees to sign non-competes. With strong recruitment incentives with competitors, an employee who feels offended when asked to sign a non-compete may look elsewhere. The same is true for new hires. A potential new employee may find a non-compete off-putting and may decide to take another offer from a competitor.

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[1] The White House, FACT SHEET: Executive Order on Promoting Competition in the American Economy, www.whitehouse.gov, https://www.whitehouse.gov/briefing-room/statements-releases/2021/07/09/fact-sheet-executive-order-on-promoting-competition-in-the-american-economy/ (last visited Oct. 18, 2021).
[2] Exec. Order No. 14,036, 86 Fed. Reg. 36,987 (July 9, 2021).
[3] The White House, supra note 1.
[4] Id.
[5] O.C.G.A. §§ 13-8-55 and 13-8-53.
[6] O.C.G.A § 13-8-53.
[7] Lapolla Industries, Inc. v. Hess, 325 Ga. App. 256, 750 S.E.2d 467 (Ga. Ct. App. 2013).