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.