Quick Update: President Biden Issued an Executive Order on Noncompetes (and other things)

As expected, President Biden signed an “Executive Order on Promoting Competition in the American Economy.”

Although the Order is not yet available (I will link to it, as soon as it is), according to President Biden during a press conference this afternoon, the Order outlines 72 specific actions, three of which he focused on during the conference. In particular, one of those three is federal regulation (by the FTC) of noncompetes.

Although he provided additional background explaining his concerns about noncompetes, he provided no additional details about what he intends the regulations to look like beyond what we already know, see Change of Course on Noncompetes: President Biden to Issue Executive Order.

With regard to the background, President Biden referenced a 2018 speech that he gave at The Brookings Institution, during which he came to learn how prevalent noncompetes are (according to certain studies). In that regard, he noted (consistent with Press Secretary Psaki’s remarks from yesterday) that noncompete agreements are used for 1 in 3 workers, and “they aren’t just [used for] high-paid executives or scientists who [know the] secret formula[] for Colca-Cola so Pepsi can’t get it’s hands on it,” they are used for “1 in 5 workers without a college education,” including “construction workers [and] hotel workers.” (He also mentioned that they are used disproportionately with women and women of color, though there is no indication what that belief is based on.)

He also gave several examples, highlighting what he saw as the “ridiculous” use of noncompetes, including “people running the machines that lay down asphalt” and people working at McDonalds. As to the latter, he asked rhetorically, “Is there a trade secret about what’s inside that patty?”

He also asserted said that there are an “[i]ncredible number [of nocompetes used] for ordinary people [which] is done for one reason: to keep wages low. Period.” While that (and other improper objectives) may sometimes be the goal, as I assume he and his staff recognize (given some of his other comments), noncompetes are typically used for proper, legitimate purposes, including (as he alluded to) protecting trade secrets.

The three takeaways from today’s press conference are: (1) the President appears focused on noncompetes used for low-wage and blue-collar workers (as opposed to high-paid executives and scientists); (2) the protection of trade secrets appears likely to remain a legitimate interest that can be protected by noncompetes; and (3) some of the assumptions that would support regulatory (or legislative) action reflect abuses, rather than legitimate uses.

In the end, President Biden’s comments leave me optimistic that any regulation will be balanced, focusing on regulating the abuses, rather than a throw-the-baby-out-with-the-bathwater wholesale ban.