Have a non-compete clause? Biden’s EO could void it … but not for a while

President, saying competition is key to capitalism, appears to want to make it easier to switch jobs

President Joe Biden signed an executive order Friday that aims to change the state of business and the economy. The order includes 72 initiatives that Biden says are based on one basic premise: Open competition is the key to capitalism.

“The heart of American capitalism is a simple idea: open and fair competition,” Biden said. “Competition keeps the economy moving and keeps it growing. Fair competition is why capitalism has been the world’s greatest force for prosperity and growth.”

The initiatives could lead to a major shakeup of key industries, including technology and health care – and are sure to cause a battle between the administration and corporations that figures to end up in the courts.

They also may change another aspect of business that impacts almost every sector: Non-compete employment clauses.

Biden has directed the Federal Trade Commission to come up with national regulations on non-compete clauses – and seemingly has asked the FTC to do so in a manner that will make it easier for workers to move from one job to another.

Daniel Barnes, an attorney at Chiesa Shahinian and Giantomasi in West Orange who specializes in contract and partnership disputes, employment covenant and related litigation, said it is unclear at this point how much the executive order will impact employment in New Jersey, which already has established case law on the issue.

“It is going to heighten awareness of the whole issue, but the devil is in the details,” he said. “It says the FTC should exercise its statutory rulemaking authority to curtail the unfair use of non-compete clauses. We already have case law in New Jersey that curtails the unfair use of non-compete clause. 

“The question is whether the federal floor is going to be higher or lower than New Jersey’s floor. It sounds to me that it’s going to be higher. But we don’t know that yet.”

ROI-NJ talked with Barnes to get a quick take on this aspect of the executive order. Here are his thoughts, edited for space and clarity:

ROI-NJ: If I’m an employer in New Jersey who uses non-competes, am I worried? What should my reaction to this be? 

Daniel Barnes: You need to be monitoring the situation because your ability to enforce your non-competes may very well change at the end of the federal rulemaking process. 

ROI: If I’m an employee in New Jersey with a non-complete, am I celebrating? What does this mean?

DB: It gives you hope that even if you signed a non-compete, it may not be enforceable at some time in the future – once the new rulemaking is completed.

ROI: What does ‘in the future’ mean? Are we talking 6 months, 1 year, 5 years? How long will it take for the rule-making process to be complete?

DB: Six to 12 months.

ROI: If you had to predict, what do you think the new rules will look like?

DB: Assuming the rulemaking survives the expected court challenge, the likely scenario is that there will be some non-competes that are enforceable today that will not be enforceable tomorrow.

ROI: Talk about the likely court challenge – how long will that take?

DB: Another 12 months. Usually, you file your court case in the district court in which you have the case. In federal rulemaking like this, it goes to the United States Court of Appeals for the District of Columbia Circuit – and then it goes to the Supreme Court. It’s much faster. So, it’s not going to be something that drags on forever. 

So, overall, it’s 6 to 12 months to finish the rulemaking, and then they’ll be a challenge, which could take another year.

ROI: OK, big picture. For someone who lives and breathes non-compete legal rulings with clients on both sides of the issue, what kind of day is this for you? What is this on a scale of 1-to-10, with 10 being your Super Bowl?

DB: As someone who specializes in this area, this is a fascinating day. Because prior to today, non-competes were judged on a state-by-state basis. The sea change here is that it’s federal.

There will be federal regulations that govern these things, assuming it withstands challenge. That’s a lot different than we’ve had in the past, where every time an employee or employer wanted to challenge these, you have to know where you worked. Arizona, Arkansas or Alabama – just to take three ‘A’ names – may all think differently. This could be different; you could get a uniform law. 

So, as someone who is nerdy enough to follow this a lot, this is an 8 or 9 sort of day. It’s not the Super Bowl, it’s more like the conference-championship-game day. The Super-Bowl-day will be when they announced the actual regulations.