Noncompetes Under New State Law Restrictions: Wage Requirements, Notice, Time, Layoffs, Proposed Federal Legislation

Description

Noncompetition provisions in employment agreements and, to a lesser extent in business purchase agreements, have long been the target of state regulation. The rationale is that restraints on trade remove employees from the job market and, in the acquisition context, may remove property from commerce.

From New York's requirements that noncompetes protect only an identified and legitimate business interest to California's near ban on noncompetition restrictions, states are increasingly passing legislation limiting these agreements' enforceability. Statutes have imposed income minimums for enforceability and required release if the employee is terminated without cause. Some states mandate that independent consideration be paid to employees to create enforceability and narrow the time frame for enforcement. State laws also address whether a noncompete would apply to agreements between two businesses exiting a joint venture.

State laws that apply strict requirements to noncompetition agreements attempt to limit use in industries and positions that do not require particular technical expertise and skills. The statutory differences between states make it difficult for employers with regional or national reach to implement uniform noncompetition policies. These differences can frequently lead to complicated conflict-of-law issues, especially when employees move between states or work in different states for the same employer. This often leads to the courts of one state applying the law of another and can sometimes bring about unpredictable results.

The Federal Trade Commission and Department of Justice held a public workshop in December 2021 that continued to support the potential creation of a rule to restrict noncompetition clauses in employer-employee contracts throughout the United States. It is currently unclear how the federal government can synchronize different state approaches, and it is unclear if this is an administration priority for the labor market.

Listen as our expert panel discusses this evolving issue to provide employment counsel with practical advice on drafting and negotiating noncompetition provisions in light of current state-specific restrictions.