However, in certain jurisdictions, employees must be provided an additional benefit, such as additional monetary consideration e. Other jurisdictions require a threshold period of employment before a non-compete provision can be enforced. As a general matter, non-compete agreements entered into as part of a sale of business transaction are subject to a much lower level of scrutiny than those arising in the employment context. Temporal reasonableness is generally determined by evaluating the unique facts of each case.
A handful of states, including Utah [11] and Massachusetts,[12] have enacted statutes that set out temporal limitations regarding reasonable durations. Further, other states, such as Florida, [13] Georgia,[14] and Washington,[15] identify durations that are presumptively reasonable ranging from six months to two years.
In terms of the geographic scope of a non-compete clause, reasonableness is generally determined by the locations where the company conducts business. Overall, the enforceability of a non-compete clause ultimately will depend upon the governing jurisdictional law and the specific facts of each case.
In particular, state attorneys general have aggressively pursued actions against fast-food restaurants and other national chains for their use of non-compete provisions with their more rank and file employees. Certain states, like California, have a history of not recognizing or enforcing non-compete clauses, but now a coalition of state attorneys general are urging the FTC to ban the use of non-compete clauses in employment agreements on a national level.
In early January, the FTC held a public workshop to examine whether the FTC should promulgate a rule to restrict the use of non-compete clauses in employer-employee employment contracts.
Notwithstanding their different positions, both commissioners cited federal and state legislative policymaking over non-competes. Among those efforts is a federal bipartisan bill — the Workforce Mobility Act — introduced by Sens.
Chris Murphy D-CT and Todd Young R-IN , which would eliminate the use of non-compete clauses in employment agreements, with certain exceptions for partnership dissolutions and sales of businesses. Employers should take note of the current policy debate and enforcement climate related to non-compete covenants in the labor market. We recommend careful consideration of the need for including them in any current or anticipated employment agreements to mitigate the possibility that such provisions would be declared unenforceable or attract civil or criminal enforcement actions.
The following practical tips can help mitigate antitrust risk. When considering the use of non-compete clauses in employment agreements outside of the sale of business context, ask yourself the following questions:. When considering restrictive covenants in agreements with labor market competitors such as other employers , consider the following:.
Agreements with competitors regarding wages, salaries, benefits, recruitment, or other terms of employment, must be reasonably necessary to achieve a legitimate business purpose such as, e. The legitimate business purpose — and the reason the agreement is necessary — should be specifically identified and documented, the agreement should be narrowly tailored to affect only those employees who are closely tied to the legitimate business purpose, and the agreement should contain the requisite temporal and geographic limits.
Before entering into any such agreements with competitors, consult antitrust and employment counsel to increase the defensibility of the agreement. Proactively review any agreements with other employers that are currently in place related to employment issues to enhance consistency and enforceability.
If sharing competitively sensitive information regarding wages, salaries, benefits, terms of employment, or recruitment strategies with competitors, ensure that such exchanges serve a legitimate business purpose and include appropriate safeguards around such exchanges.
In certain circumstances, for example, when companies are evaluating a merger, acquisition, or joint venture proposal, limited sharing of otherwise competitive and sensitive information may be lawful, provided that doing so is reasonably necessary to evaluate the proposed transaction and if appropriate safeguards, such as nondisclosure or other confidentiality protocols, are implemented.
Antitrust and employment counsel should be consulted before exchanging this type of information to increase defensibility. The legal landscape for the enforceability and acceptable breadth of non-compete clauses and other restrictions on employee mobility continues to change, in some cases dramatically. The DOJ clearly views the use of naked no-poach agreements as per se illegal, and certain states outlaw non-compete provisions.
Beyond that, companies face growing uncertainty regarding the boundaries of practices and contractual provisions that, for many, may be routine. Michael E. He has represented numerous global and domestic corporations in a wide variety of federal and state court cases involving antitrust claims under Sections 1 and 2 of the Sherman Act and the Robinson-Patman Act as well as unfair competition and deceptive trade practice claims under numerous state statutes.
He regularly counsels clients on competition, distribution, franchising, and sales and marketing practices. He has a broadly-based practice and represents clients in both litigation and transaction matters. He advises clients on all aspects of labor and employment law and human resources issues. Lee has represented clients in non-compete matters, EEO litigation, collective bargaining, organizing campaigns, strikes, arbitrations, layoffs and closures, health and safety investigations, wage and hour audits and She focuses on complex civil litigation, government enforcement, and white collar criminal defense, particularly in the areas of antitrust, cartel and trade regulation.
She has successfully represented both U. Rigney is an associate in the Raleigh office, focusing her practice on labor, employment and workplace safety. Also, even where allowed in Alabama, such non-compete clauses can only be agreed to after employment has begun, not at the start.
Arizona - Broadcasters and physicians in some circumstances are exempted. California - Non-compete clauses are not enforceable under California law. However, LegalNature's non-compete agreement may still be used to prohibit the employee from soliciting customers and other employees away from the employer.
Note that non-solicitation of customers clauses are enforceable only where the customers' identities are entitled to protection as trade secrets. California employers can still execute a non-disclosure agreement to prevent the disclosure or use of confidential information and trade secrets by employees.
Colorado - Physicians are exempted. Non-compete clauses are generally not enforceable. However, LegalNature's non-compete agreement may still be used to prohibit the employee from soliciting other employees but not customers away from the employer.
Non-compete agreements may be enforceable when they involve a contract for the purchase and sale of a business, a contract for the purchase and sale of business assets, or covenants by executives and management personnel and employees who constitute professional staff to executives and management personnel.
Connecticut - Broadcasters and security guards are exempted. Delaware - Physicians are exempted. In January of , Washington, D. The Act does not limit an employer's ability to protect its own confidential information, nor does it apply to agreements between the seller of a business and one or more buyers of that business.
The law is anticipated to become effective in fall of Florida - Mediators are exempted. Illinois - Broadcasters, government contractors, and physicians are exempted. Iowa - Franchisees that do not renew are exempted. Kansas - Accountants have a limited exemption. Louisiana - Auto salesmen and real estate broker licensees with special requirements are exempted. So here are some suggestions. We also represent venture capital funds and other investors who invest in companies throughout the U.
And that is what Fourscore Business Law is based on. Our clients operate in a broad range of industries including tech, IoT, consumer products, B2B services and more. Shoot us an email or give us a call at Your first call is on us. Certain of the trademarks and logos displayed on the site are owned by third parties. By: Jesse Jones Are non-competes enforceable?
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