July 22, 2021

Noncompetes Face Restrictions Following White House Executive Order

Noncompetes are one of the many legal documents that come into play with regard to employment law, and an executive order recently signed by President Joe Biden encourages the Federal Trade Commission (FTC) to ban or limit those agreements.

“Noncompetes can be scary,” notes George Nemphos, Co-Founder and Managing Member of Nemphos Braue, “but they can also be a necessary tool for developing and training a workforce.” Having a noncompete in place can reduce external leakage to competitors. It may also engender confidence on the part of the company to explore riskier research and development (R&D) projects – with potential for a higher payoff.  The possibility of novel technology being released prompts the desire for noncompete agreements and limitations could impact valuations for certain companies with R&D interests.

Another consideration is the level of enforcement. In states with stricter enforcement, companies tend to undertake riskier R&D paths than in states that don’t enforce noncompetes.

According to a statement issued by the White House, “Tens of millions of Americans—including those working in construction and retail—are required to sign noncompete agreements as a condition of getting a job, which makes it harder for them to switch to better-paying options.” While the White House argues that such measures promote competition and drive economic growth, many businesses, especially in the private sector, support the use of noncompete agreements to protect intellectual property, trade secrets, client data and investments.

Maryland laws effective in 2019 already limit the use of noncompetes to employees earning more than $15/hour or $31,200 annually, with provisions that address the use of client-related information. Maryland is one of nearly a dozen other states that already has limits in place.

Nemphos Braue attorneys can review your corporate legal documents and ensure your business protects its interests and trade secrets with the appropriate agreements. Depending on changes issued by the FTC, Maryland regulations and legislation could also be affected. Contact Old Line Government Affairs to have a lobbyist monitor ongoing changes and represent the voice of your business to legislators.

More information from the Society of Human Resources Management (SHRM)

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