President Biden’s executive order earlier this month asking the Federal Trade Commission to ban or limit noncompete agreements, which put curbs on former employees who go to work for competitors, adds momentum to ongoing efforts on the issue, experts say. 

No immediate direct action is likely because of the July 9 order, which addressed numerous other issues, but experts recommend employers prepare for future developments by examining their use of the contracts.  

An FTC spokeswoman said in a statement that noncompetes “have been an ongoing concern” for the agency and while it has not announced any new initiatives since the president’s executive order, “I expect we will do something further in this space, and the issue is certainly on our radar.”

Experts point out that nonsolicitation agreements that prohibit departing employees from soliciting their former clients as well as agreements that enforce protection of trade secrets, are not affected by the executive order.

While breaches of noncompetes are not covered by insurance, they are often used by insurance brokerages and have led to considerable litigation, including a recent dispute over Marsh LLC’s hiring of 44 former Aon PLC employees in Florida. 

In issuing the executive order, President Biden called on the FTC to exercise its “rulemaking authority to curtail the unfair use of no-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

The issue attracted considerable attention in a widely publicized case in 2016, in which fast-food franchisor Jimmy John’s Franchise LLC, based in Champaign, Illinois, said it would stop asking sandwich shop workers to sign noncompetes agreeing not to work in other sandwich shops in a three-mile radius for two years after leaving the company. The move came after the Illinois and New York attorneys general filed suit against the company.  

In a trend that is about five years old, several states, including California, have banned noncompetes in all or nearly all situations, while others have instituted more limited bans that may focus on low-wage workers. 

Maryland’s 2019 noncompete law, for instance, forbids employers from requiring employees who earn $15 per hour or less, or $32,000 annually, to sign such agreements. 

Although observers generally expect most action on the issue to continue to be at the state level, there has also been federal legislation supported by both Democrats and Republicans. Bills include H.R. 1367, the Workforce Mobility Act of 2021. 

The rulemaking process precludes any immediate action, and it is unclear what the FTC will ultimately do, experts say.  

“The one solid takeaway” from the executive order is that there is a trajectory toward “lower and lower tolerance for noncompetes,” said Linda M. Jackson, a partner with Arent Fox LLP in Washington and co-leader of its trade secrets, non-competes and employee mobility group. 

“I really don’t see them doing some kind of wholesale change that is so dramatic that it would face extreme opposition” in the courts, because that “will likely result in litigation which would just tie it up anyway,” said Donald W. Schroeder, a partner with Foley & Lardner LLP in Boston.

The FTC will likely eventually issue a rule that will impose some limits on noncompetes, but no sooner than next year, he said. “Most often it’s going to run at the state level,” he said.

Eric W. Weibust, a partner with Seyfarth Shaw LLP in Boston, said the agency will probably follow the state-level trend toward limiting enforceability of noncompetes against low-wage workers, rather than issuing a wider ban.

If insurance brokerages limit noncompete agreements to the appropriate personnel, “I don’t see there being a long-term effect” on them, he said. 

Few people will be concerned if well-paid executives “have to sit out of the market for a while and count their money,” but restricting minimum-wage earners “is absurd” and an area of concern, said Thomas E. Wallerstein, a partner with Venable LLP in San Francisco. 

“My biggest concern is whether they are going to find the right dividing line” between those who are and are not subject to noncompetes, said Jeffrey A. Mullins, a partner with Taft Stettinius & Hollister in Dayton, Ohio.

Employers who require noncompetes, should “just be cognizant of the increased sensitivity” to their use and the “narrow circumstances in which courts are enforcing them,” said Elizabeth S. Wylie, a partner with Snell & Wilmer LLP in Denver. 

Experts recommend companies revisit their noncompetes to be sure they comply with their localities’ current regulations. “Keep up with state laws because they move a lot faster” than at the federal level, Mr. Weibust said. 

Employers should consider whether their noncompetes are “completely defensible,” Ms. Jackson said, adding that nonsolicitation agreements “can be drafted in such a way that they can be almost as effective as noncompetes.”