Non Compete Laws by State
Non-compete obligations protect an employer`s trade secrets and the goodwill of customers developed by the company. They prevent an employee from accepting employment with a competitor when the former employer`s trade secrets and other confidential business information are likely to be used or disclosed, either intentionally or by unavoidable or unavoidable disclosure. Employers also rely on trade secrets and non-disclosure agreements to protect this valuable information, but neither offers the level of protection that a non-compete clause provides. On July 9, 2021, President Biden signed the Executive Order to Promote Competition in the U.S. Economy (“Order”). As Covington has already pointed out, the contract covers a number of competition issues. The order, which is particularly relevant to non-compete obligations between employers and employees, encourages the FTC to use its rule-making legislative power “to restrict the unfair use of non-compete obligations and other clauses or agreements that may unfairly restrict worker mobility.” Executive Order, Section 5(g). While the FTC has yet to issue such rules, the order follows a 2020 FTC workshop on employer-employee non-compete obligations. It also comes shortly after the FTC announced a new set of rules and updated rule-making procedures to expand rule-making power under 15 U.S.
states. C§ 57a “relaunch” and “support the planning, development and enforcement of rules – in particular new sets of rules […]”. A non-compete obligation for employees should clearly state that its purpose is to protect an employer`s trade secrets and other confidential business information from misuse or disclosure. Companies that employ low-wage workers should exercise greater caution when drafting pacts so as not to compete with each other and consider the extent to which such commitments are necessary, if any. Whether California courts are required under the full faith and credit clause of the U.S. Constitution to apply only judgments of other state courts that have personal jurisdiction over the defendant, prohibit competition, or run counter to significant public interests in California is a question that has not yet been decided.  A new law prohibits high-tech companies, but only those in Hawaii, from requiring their employees to enter into “non-compete clauses” and “solicitation bans” as a condition of employment. The new law, Law 158, entered into force on 1 July 2015.  The U.S. White House and Treasury relied on this national study on non-compete obligations. “No court in California would sanction a non-compete clause, and yet these agreements have a deterrent effect on workers,” Starr said.
“Workers don`t want to fight lawsuits” and, in many cases, they may not know that state law makes contracts unenforceable. According to section 27 of the Contracts Act 1872, any agreement that prevents a person from carrying on a legal profession, trade or enterprise is void.  However, Pakistani courts have ruled in favour of such restrictive covenants in the past because the restrictions are “reasonable.”  The definition of “adequate” depends on the period, geographic location and designation of the worker. In Exide Pakistan Limited v. Abdul Wadood, 2008 CLD 1258 (Karachi), the Supreme Court of Sindh noted that the appropriateness of the clause will vary on a case-by-case basis and will depend mainly on the duration and extent of the geographical territory. In the absence of directly relevant laws, it is generally accepted that the law of the British Crown applies: but in the case of intellectual property, many financial and other institutions require employees to sign NQCs for 10 years or more, which could be considered an application even if they leave the country or enter an unrelated field of work. Whether the state follows the Reform rule (also known as “judicial modification,” “adequacy rule,” “reasonable amendment approach,” and “partial application rule”), the blue pencil doctrine, or the red pencil doctrine (also known as the “all or nothing” rule), there are several legislative proposals in New York on the restriction of non-compete obligations. A bill proposed in April 2021 aims to prohibit the use of non-compete obligations, does not provide for exceptions and provides for lump sum damages of up to $10,000. This bill is currently a member of the State Senate Working Committee. Industries or professions exempt from non-compete obligations President Joe Biden issued a sweeping executive order on July 9, 2021, designed to promote competition in the U.S.
economy. Among other things, it encourages the Federal Trade Commission (FTC) to prohibit or restrict non-compete obligations. What is the likely outcome and what should companies do to prepare for it? “I think the federal government will probably take action,” Beck said. “I expect it to be a ban on the use of non-compete obligations for low-wage workers and perhaps dismissal obligations.” Penalties are a less common feature of the government`s non-compete obligations, but the idea could make its way to discourage companies from using them in situations where they are illegal or unenforceable, Starr said. His research shows that even in California, where non-compete obligations are prohibited and unenforceable under state law, a significant portion of workers are asked to sign them anyway, he added. In January 2021, Washington, D.C the Prohibition on Non-Compete Agreements Amendment Act, which, once enacted, will limit non-compete obligations for a wide range of workers working in D.C. and will be one of the most restrictive laws in the United States. Due to the procedural aspects of D.C legislation, the law will not come into force until April 1, 2022 at the earliest, and it is possible that there will be further revisions and amendments to the law before it is implemented. This is important because the law is not retroactive. In 2017, Illinois banned non-compete clauses against employees earning less than $13 an hour.
  Non-compete obligations are applied in Massachusetts in reasonable circumstances.  This trend has continued over the past year. In May 2021, Oregon amended its non-compete obligation to explicitly provide that excessively extensive non-compete obligations are null and void and unenforceable, which may limit a court`s ability to enforce a narrower version of this non-compete obligation. See Oregon Senate Bill 169 (change of the relevant legal language from “voidable” to “voidable and unenforceable”). Also in May 2021, Nevada amended its laws to provide penalties for employers seeking to enforce non-compete obligations prohibited by law. See Nevada Assembly Bill 47 § 22.5 (7) (Obligation of courts to award attorneys` fees and expenses if an employer wrongly attempts to (i) enforce a duty not to compete with an employee paid by the hour or (ii) prevent employees from dealing with former clients that the employee has not requested). On the 31st. In May 2021, the Illinois General Assembly passed a series of amendments to the Illinois Freedom of Labor Act. The law restricts the scope and enforceability of non-compete obligations. If Governor J.B. Pritzker signs the effective date of the amendments, the following restrictions will take effect after January 1, 2022: Non-compete obligations will apply in Illinois if the agreement is ancillary to a valid relationship (employment, sale of a business, etc.) and (1) cannot be greater than necessary to protect a legitimate business interest of the employer, (2) may not impose unreasonable hardship on the employee and (3) may not impose unreasonable hardship on the employee.
do not harm the public.  Although appropriate geographical and temporal limitations of the non-compete obligation are not expressly required by applicable law, they are generally assessed as a measure of whether the scope of the non-compete obligation is greater than necessary to protect a legitimate business interest of the employer.  On May 21, 2021, Governor Kate Brown approved the proposed changes to Oregon`s non-compete regime. The revised law, which comes into effect on January 1, 2022, states that employer-employee non-compete obligations are void and unenforceable unless: These recent developments indicate that the federal government will limit the use of employer-employee non-compete clauses. While a universal ban seems unlikely, the federal government can follow the state`s trend and ban non-compete clauses with low-wage workers or workers who don`t have access to the employer`s trade secrets. Contractors and other employers whose employees only have access to customer relations and confidential (but not secret) information may be particularly affected by such restrictions. The following list will tell you whether the obligations or non-compete clauses are enforceable for any, some, or all types of employment relationships governed by the laws of your state. If certain professions are listed, only those professions are exempt from being bound by non-compete obligations in that State, and non-compete obligations are likely to continue to apply to all other professions not listed.
Note that even if the non-compete obligations are unenforceable in your state or against certain professionals you employ, your state will likely continue to allow you to enter into a non-disclosure agreement to prevent employees from disclosing or using confidential information and trade secrets. When it comes to restricting competition, each state has a slightly different approach, and non-compete obligations are no exception. Non-compete obligations are usually concluded with the idea of preventing unfair competition between an employee and the employee`s former business for a period after the end of the employment relationship. .