Non Compete Agreements Should Be Illegal

Which workers are exempt or not protected by the new law? All non-compete obligations are void and unenforceable under the new law, except for those that bind the following: Non-compete clauses are provisions in employment contracts that restrict an employee`s actions after leaving that employer. Non-compete agreements are regularly challenged, and states struggle to balance an employer`s legitimate business interests with an employee`s right to change employers. President Biden issued the executive order to promote competition in the U.S. economy on July 9, 2021. With only vague instructions directing the Federal Trade Commission (FTC) to «reduce» the use of contracts to unfairly impede worker mobility, one can see how this apparent federal prohibition of non-compete will affect businesses. [47] Lisa Nagele-Piazza, Are noncompetes enforceable during the pandemic, SHRM (October 1, 2020), www.shrm.org/resourcesandtools/legal-and-compliance/state-and-local-updates/pages/are-noncompetes-enforceable-during-the-covid-19-pandemic.aspx. However, there are many other mechanisms to protect employers from these breaches of confidentiality. For example, federal laws such as the Uniform Trade Secrets Act and the Economic Espionage Act protect businesses from the unauthorized use or misappropriation of protected trade secrets. [30] There are also government regulations governing similar matters,[31] and workers are bound by the fiduciary and loyalty duties of the state.

These legal and customary protections for corporate information can fill any gap that employers might fear by prohibiting non-compete obligations. [32] The new legislation also does not prevent the seller of a business from entering into a contract with the buyer of that business stipulating that the seller undertakes not to compete with the buyer`s business. According to Dolghih, «Non-compete clauses are particularly useful in ensuring that employees who have had access to confidential information and special training from a company cannot simply enter into a deal with their employer and use the information they have learned at work to compete with that employer. To be enforceable, a non-compete obligation must include an offer, acceptance, intent, and benefit or «consideration» to the employee in exchange for their promise. The benefit could be as simple as getting the job or, for an existing employee, a promotion or raise. Many employers require or require their employees to sign non-compete obligations in addition to an employment contract. These are contracts governed by national law in which an employee undertakes not to work for a direct competitor for a certain period of time after leaving the employer. Non-compete clauses are valuable to employers not only because they protect against employee loss, but also because they can provide additional protection for a company`s confidential information, such as customer lists or trade secrets. With regard to limiting a non-compete obligation, most employers consider that between six months and two years is a reasonable period of time for non-compete obligations, with one year being quite common. However, the timeframe depends on the industry and the type of career path the person has.

But the longer the duration of the non-compete obligation, the more likely it is that a court will find it unenforceable. There is no national prohibition of non-compete obligations. However, on July 5, 2021, President Biden issued an executive order aimed at promoting competition in the U.S. economy, encouraging the Federal Trade Commission to prohibit or restrict the use of non-compete clauses. [41] In addition, the Labour Mobility Act and the Freedom of Competition Act were introduced in 2021 to prevent the application and creation of non-competition clauses. [42] «Understanding the extent of an employer`s current non-compete obligations will allow the employer to make the necessary adjustments if and when the FTC takes action,» Elkins advised. During the pandemic, many workers have filed lawsuits challenging the enforceability of non-competition clauses. While the courts continue to apply these clauses, some have increased the level of scrutiny with which they have been analyzed and have expanded their investigation.

[47] For example, one court considered the increasing number of businesses that have adopted telework practices during the pandemic to determine whether a geographic restriction is appropriate. [48] Non-compete obligations hurt workers. Originally intended to protect a company`s trade secrets and other confidential information, non-compete obligations are increasingly being used by companies in low-wage industries to prevent workers from changing jobs, thereby limiting workers` economic opportunities and suppressing their income. Workers in underpaid industries often make more money by changing jobs, so non-compete obligations prevent these workers from improving their wages and working conditions. According to NPR, «The White House estimates that non-compete practices are used by about half of private sector companies for at least a portion of their employees, affecting between 36 and 60 million workers. The figures come from a 2019 report by the left-wing Economic Policy Institute, which surveyed 634 employers. Some States have already prohibited such agreements. West Virginia (WV) recognizes the validity of employment contracts. In the event of a dispute, a court will decide whether these contracts are enforceable. In analyzing non-compete obligations, the Court considers several issues: [45] Treasury Department, Office of Economic Policy, Non-Competition Contracts: Economic Effects and Policy Implications, March 2016, p.

4; Cal. Bus. & Prof. Code § 16600. [4] Is my non-competition clause legally enforceable? (accessed November 1, 2020), www.legalnature.com/guides/is-my-non-compete-agreement-enforceable#industry-restrictions. Christopher Ghazarian, general counsel for web hosting company DreamHost, said: «The most important question a business owner can ask is: why do we need a non-compete obligation in the first place? Although most States allow the application of reasonable non-compete obligations, the growing trend is to restrict or prohibit their use. In California, North Dakota, the District of Columbia and Oklahoma, non-compete obligations are totally or largely unenforceable against public policy. Other states, including Maine, Maryland, New Hampshire, Rhode Island and Washington, have banned non-compete obligations for low-wage workers. If a non-compete obligation lasts longer than two years, it is likely to be scrutinized more closely by a court and less likely to be considered appropriate. However, there is no hard and fast rule, so it`s best to consult a lawyer before signing such an agreement in any state except those that typically overturn non-compete clauses. As a general rule, the larger the geographic area, the less likely it is that the non-compete obligation will be enforceable. For example, an employer will have a much stronger argument if a non-compete clause is limited to a single city versus an entire state.