Employers who require all
employees to sign a form non-competition agreement regardless of the state in
which the employee is located or the type of work performed by the employee should
think twice before doing so. Recent legislation focused on reform of
non-competition agreements at the state level may signal a trend. In light of
those changes and variations from state to state in enforceability, employers
are well advised to conduct an individualized assessment to determine whether
to require an employee to sign a non-compete agreement as a condition of
initial or continued employment.
President Obama’s
Administration recently issued a Fact Sheet on spurring
competition claiming that “non-compete agreements narrow the
employment options for an estimated one in five workers,” and urged states to
reform laws on such agreements. While it’s uncertain whether President-Elect
Trump’s Administration will follow that lead, what is certain is that reform in
some states is already underway.
Illinois, for example,
recently enacted the Illinois Freedom to Work Act, 5 ILCS § 140/1 et. seq.,
which prohibits private employers from entering into non-competition agreements
with “low-wage employees.” Utah also passed the Post-Employment
Restrictions Act, Utah Code § 34-51-101 et seq., in March of this
year, which restricts non-compete agreements executed on or after May 10, 2016
to a period of one year post-termination. By contrast, Idaho passed a bill in March 2016 amending Idaho
Code § 44-2704 to provide an employer with a rebuttable presumption of
irreparable harm if a court finds that a “key employee” or “key independent
contractor” is in breach of a non-compete covenant. Legislation concerning
non-compete reform was also introduced this year in Massachusetts, but failed to pass before
the end of the legislative session. And New York State Attorney General
Eric Schneiderman announced that he will propose legislation next year to limit
the use of non-compete agreements in New York.
Employers should monitor
changes in the legal landscape concerning enforceability of non-compete
agreements in each state where they have employees and modify agreements
accordingly, or risk the inability to enforce them. We will continue to
monitor and provide updates on developments in non-compete law as we assist
employers with navigating the non-compete reform movement.
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