White House Executive Order Encourages Federal Agencies to Ban or Limit Non-Compete Agreements

President Biden’s recently signed executive order encourages federal agencies, including the Federal Trade Commission, to ban or limit the use of non-compete agreements.

Business owners may use non-compete agreements in Michigan to protect trade secrets and retain top talent. A non-compete agreement may also be utilized to prevent employees from sharing confidential information, starting a competing business, soliciting customers, and more.

The White House estimates that roughly half of private-sector businesses require at least some employees to enter non-compete agreements, affecting 36 to 60 million workers.

According to the 2019 Economic Policy Institute report, which surveyed 634 employers, non-competes are commonly used in the construction, retail, and manufacturing industries. The report also stated that workers of all pay scales, from high-earning physicians to hourly workers, were required to signed non-compete agreements as a condition of employment.

The Biden administration stated that banning or limiting non-compete agreements will lead to economic growth, making it easier for workers to change to higher-paying jobs.

The federal executive order may prompt some states to consider similar legislation, including possible changes to Michigan law.

Changes to Michigan law

Michigan House Bill 4874, which, if signed into law, would create restrictions for utilizing non-compete agreements. Under the bill, an employer could not obtain a non-compete agreement from an employee unless the employer had completed all of the following:

• Provided applicants for the position with written notice of the non-compete agreement requirement.
• Disclosed the terms of the non-compete agreement in writing before hiring the employee.
• Posted the act or a summary of its requirements in a conspicuous place at the worksite where it is accessible to employees.

Also, the bill would prohibit employers from requesting or obtaining non-compete agreements from certain low-wage employees. Michigan employers who utilize non-compete agreements should keep an eye on the bill to determine if it is enacted into law.

Help is available

The business attorneys at O’Reilly Rancilio review, negotiate, and draft employment, non-solicitation, confidentiality, consulting, and independent contractor agreements. Our attorneys also consult with clients and prepare employee handbooks and other documents related to employment policies and employment or independent contractor agreements. For more information, please call 586-726-1000 or visit our website at www.orlaw.com.