Non-Compete Trends Employers Watch

NON-COMPETE AGREEMENTS CONTINUE TO BE SCRUTINIZED IN 2019

In terms of non-compete agreements, 2019 is picking up right where 2018 left off by seeing an influx of state laws and regulations requiring employers to tailor and specify each agreement by the geographical area it covers.  Long gone are the days when a non-compete agreement could be drafted to universally cover the entire United States.  Employers need to carefully draft each agreement to ensure compliance with each state in which the employee is prohibited from working.

For example, Massachusetts recently enacted a law called the Massachusetts Noncompetition Agreement Act (MNAA) that applies to every agreement signed after October 1, 2018 and places several limits on post-employment restrictive covenants.  One of the main requirements of MNAA that employers looking to use non-competes in Massachusetts might be especially interested in is the provision requiring employers to pay employees half their salary, or some other negotiated compensation, during the period the employees are barred from working for competitors.  Other notable provisions include blocking employers from enforcing agreements against employees who are laid off or fired without cause, and eliminating the ability to have low-wage workers, university students or minors sign non-compete agreements.  MNAA also limits agreements to a duration of one year and requires the agreements to be “no broader than necessary” to protect “legitimate business interests,” such as trade secrets or confidential information.

While California is already known for its strict ban against non-compete agreements, many states, including New Jersey, Pennsylvania, and Vermont, are considering, or are in the process of passing, legislation similar to Massachusetts to limit non-compete agreements. 

As this trend increases, more and more states across the United States are likely to implement some sort of state-specific ban or restriction on non-compete agreements.  It is unknown how restrictive these laws may be and whether such restrictions, including those in the MNAA, will hold up in court, but there is little doubt that employees are going to benefit from these laws and regulations, especially if employers are unaware of them prior to drafting non-compete agreements.

EMPLOYERS NEED TAILORED AND NARROWLY DEFINED NON-COMPETE AGREEMENTS

Employers who use or are considering using a uniform non-compete agreement to cover all states should be wary that doing so may render the agreement unenforceable in many states, leaving your departing employee free to start work for your competitor next door.  Rather than letting that happen, employers should be using non-compete agreements tailored to the specific area and states for which the employee is prohibited from working.  This means staying up to date on new laws and legislation in each applicable state and taking a thorough look through any proposed agreement to ensure that it is narrowly written to abide by the laws of the state it is to be enforced in.  Moreover, it is important to know if a state has a certain duration for which non-competes are effective and to always draft narrowly by linking the prohibited activities of the employee to a legitimate business reason to ensure the agreement is not overly broad and unenforceable.  Spending time on the front end crafting a specific and customized agreement for each employee will undoubtedly save you time, money and  headaches on the back end if you have to fight with a departing employee over the enforceability of an agreement.     

If you have any questions regarding non-compete agreements, or need help drafting one, please contact your Thompson Coe attorney at (651) 389-5000 or at myHRgenius@thompsoncoe.com.  You can also find additional information and tips for your company and HR professionals at https://myhrgenius.co.       

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