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Scrutiny and Regulation of Non-Compete Agreements
On July 9, 2021, President Biden issued an “Executive Order on Promoting Competition in the American Economy.” The Executive Order takes aim at non-compete agreements, and affirms the Biden Administration’s policy “to enforce the antitrust laws to combat the excessive concentration of industry, the abuses of market power, and the harmful effects of monopoly and monopsony.” It underscores the authority of the Sherman Antitrust Act (15 U.S.C. §§ 1 et seq.), the Clayton Antitrust Act (15 U.S.C. §§ 12 et seq.) and other laws that challenge transactions that lead to excessive market concentration.
Among other things, the Executive Order asks the Federal Trade Commission (“FTC”) to use its regulatory authority prescribed by Federal Trade Commission Act to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” See Executive Order, Section 5(g).
A non-compete is a type of employment contract or restrictive covenant that limits an individual’s ability to work in a particular industry. Non-competes may be stand-alone documents or incorporated into the individual’s employment contract. They typically limit the geographical locations that an individual can work in for a certain period after they leave a job. Critics of non-competes note that, although intended to be a “shield” to protect employers, over the years, they are more often used as a “sword” by employers to control their workers with excessive and unreasonable terms.
Because the Executive Order is not particularly specific, the FTC has the discretion to tackle the problem of unfair non-compete agreements as it sees fit. The Executive Order does not suggest a complete ban on non-competes, so long as such agreements reasonably protect businesses. However, the Executive Order demonstrates the Biden Administration’s determination to protect workers from abusive restrictive covenants.
The business industry is likely to challenge any FTC regulations that follow the Executive Order. It is unclear whether such regulations will survive constitutional scrutiny in federal litigation. However, there appears to be some public and Congressional support for restricting the use of non-competes. For example, the bipartisan Workforce Mobility Act of 2021 (“WMA”) has been introduced in the House of Representative and the Senate. If enacted, it would limit the use of non-competes to sales or dissolutions of business, authorize the U.S. Department of Labor to educate the general public about the use of non-competes, and give workers a private right of action to sue for violations of the WMA.
In Arizona, reasonable non-compete agreements may be enforceable. That includes physician non-competition agreements. In determining reasonableness, Arizona courts look at the duration, geographic scope, and type of activity prohibited by the agreement. Arizona law concerning non-competes is complex. Employers should ensure non-compete agreements are carefully drafted with reasonable terms specifically addressing the business interests of the employer for which the agreement is designed to protect. Employees, including physicians, should seek legal advice regarding the enforceability of non-compete clauses and potential consequences for violating them.
For more information, please contact John Conley or Chelsea Gulinson at 602-792-3500.
 The Executive Order is not directed at the use of non-competes to protect owners in business sales. The Executive Order’s purpose is to protect an employee’s ability to work.
 Section 5(g) may potentially apply to other types of restrictive covenants, e.g., non-solicitation and non-disclosure agreements.