New Biden Mandate Spells Trouble for Employer Enforcement of Restrictive Covenants

On July 9, 2021, President Biden signed a broad Executive Order on Promoting Competition in the American Economy. The opening paragraph sets the tone for the Order and accompanying Fact Sheet and presidential remarks.

A fair, open, and competitive marketplace has long been a cornerstone of the American economy, while excessive market concentration threatens basic economic liberties, democratic accountability, and the welfare of workers, farmers, small businesses, startups, and consumers.

While the Democratic party has generally been in favor of market competition (as opposed to the Republican pro-employer stance), this Order marks a new era of federal guidance. The ripples of this new edict are in their infancy, but employers and business owners should be on alert for changes in enforcement policy and forthcoming litigation.

The Order highlights several areas of concern.

• The Federal Trade Commission (FTC) is to ban or limit employee noncompete agreements. This has traditionally been a very jurisdiction-dependent area of contract interpretation, but this federal guidance could very well trickle down to the state level. It’s never been more important to have an employment attorney in your state review your restrictive covenants for enforceability. If your policy is broadly worded for maximum intimidation, it’s time to trim the fat in favor of terms that are narrowly tailored and serve a legitimate business purpose (e.g. protection of company goodwill).
• Businesses considering a merger (and even those who have recently completed such transactions) should cross their t’s and dot their i’s--the FTC and DOJ have been instructed to review and revise their Merger Guidelines.
• Sweeping enforcement changes loom for internet service providers, including restrictions on early termination fees and a ban on landlords requiring tenants to contract with a certain ISP.
• The healthcare industry is being heavily scrutinized in light of skyrocketing prescription drug and hospital prices.

Bottom line: if your business is considering any activity that could be viewed as “anti-competitive,” it’s time to talk to a lawyer.