What Is Happening With Non-Compete Agreements?
A stubborn myth is non-compete agreements are not enforceable in Texas. Nothing could be further from the truth.
New clients regularly tell me that the non-compete agreement they signed is not enforceable because Texas is a “right to work” state. Unfortunately, that means only you cannot be required to join a union as a condition of employment in Texas. “Right to work” has nothing to do with whether a non-compete agreement can be enforced in Texas.
Even though a non-compete is considered a restraint in trade, Texas law allows parties to enter enforceable non-compete or non-solicitation agreements. The reason for this is that specific business interests—such as trade secrets or business goodwill—are considered interests worthy of protection from a departing employee for a determined period.
However, attitudes towards non-compete agreements are changing. In recent years, some places passed laws barring companies from including non-compete agreements in employee contracts. For example, the District of Columbia passed such a law that took effect in March 2021.
President Biden recently issued an Executive Order on Promoting Competition in the American Economy. A part of this Executive Order asks the Federal Trade Commission to use its regulatory authority to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”
While this Executive Order does not change the law, it is important. What makes it important is that the President is using his bully pulpit to complain about the use of non-compete agreements and how those impact employees. President Biden asks the FTC to consider acting to limit the use of non-competes in employment.
What does that mean for the future of non-competes? We don’t know.
The FTC has the power to issue rules and regulations. It seems unlikely the FTC will have rules or regulations that ban non-competes in all situations. However, the FTC will look at whether non-competes are overused or used so in a way that unfairly limits a workers’ ability to move from job to job.
The FTC might distinguish between low-wage workers who do not routinely work with highly confidential information and senior-level executives who know the company’s trade secrets and confidential strategies. That distinction would make sense. If the FTC does act, there might be litigation over the scope of the FTC’s rule-making authority.
Congress is also looking at non-competes as well. The Workforce Mobility Act of 2021 was introduced in the Senate and the House of Representatives. It has bipartisan support. If this law passed, it would limit the use of non-competes to situations involving a sale of a business or dissolution of a partnership. That would be a huge change in the law and would affect employers in all 50 states.
We don’t know what the future will be for non-competes. However, President Biden made his thoughts clear that non-competes have the potential to harm employees with his Executive Order. What that means is that we must be paying attention to what the FTC does and what Congress does soon.