As we previously reported, President-elect Biden has issued a “Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions” on his website, and it includes a statement that his incoming administration purportedly plans to “work with Congress to eliminate all non-compete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets.” It is unclear what “narrowly defined category of trade secrets” this would encompass, but regardless such a ban would upend over 200 years of state law and would have major impacts across all industries, including the financial services industry. Although Registered Representatives are permitted to move between firms who are members of the Broker Protocol, non-competes are ubiquitous in the broader financial services industry, including with fund and asset managers.

Boston partner Erik Weibust was recently interviewed for an article in Ignites, a mutual fund trade publication owned by the Financial Times, entitled “Hello Biden, Goodbye Employee Noncompete Agreements?” The article (which is behind a paywall), includes the following insights based on Erik’s interview:

  • Doing away with non-competes “would be a big change” for asset managers, says Erik Weibust, a partner in Seyfarth’s Trade Secrets, Computer Fraud & Non-Competes practice.
  • Whether companies enforce non-compete provisions depends in part on the laws of the states in which they operate, Weibust says. And 47 states and the District of Columbia permit enforcement of the clauses.
  • If shops could no longer use non-competes, employers might tap laws protecting trade secrets and confidential information to a greater degree, Seyfarth’s Weibust says.
  • Trade secret violations can be difficult to prove, Weibust says. For example, an executive may know all the steps or approaches that didn’t work in creating an investment process or new product, but it’s hard to prove a negative. The rust-prevention product WD40, for instance, is named for the 40 attempts it took to get the product right, Weibust says.
  • As with many other legislative and regulatory initiatives, the fate of non-competes may ride to some extent on the January runoff Senate elections in Georgia, Weibust says.