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Limiting the Non-Compete Provisions in Employment Agreements

Limiting the Non-Compete Provisions in Employment Agreements by Alan Krystal

{4:54 minutes to read} In one of my articles last year (Is Your Company Protected from Your Former Employees?) I discussed non-compete provisions in employment agreements. I stated that such provisions are generally prohibited in California, and in other states are subject to interpretation on a case-by-case basis. 

Since then, many states have sought to introduce legislation. New York State Attorney General Eric Schneiderman has proposed a bill that seeks to do the following:[1]

  • Prohibits the use of non-competes for any employee below the salary threshold set by Labor Law Section 190(7), currently $900 per week;
  • Prohibits non-compete agreements that are broader than needed to protect the employer’s trade secrets or confidential information;
  • Requires non-compete agreements to be provided to employees before a job offer is extended;
  • Requires employers to pay employees additional monetary consideration if they sign non-compete agreements;
  • Limits the permissible time duration for non-compete agreements; and
  • Creates a private right of action with remedies including liquidated damages for violations. 

Other states have enacted legislation that limits the employer’s ability to impose or enforce a non-compete agreement. The Illinois Freedom to Work Act expressly prohibits employers from entering non-compete agreements with any employee earning the greater of the applicable federal, state or local minimum wage or $13 per hour.

In Oregon, the enforceability of non-compete agreements is limited to 18 months from the date of the employee’s termination.

In Utah, the Post-Employment Restrictions Act limits the enforceability of non-compete agreements to one year from the date of the employee’s termination, and subjects an employer to liability for an employee’s arbitration costs, attorney fees, and actual damages if the employer seeks to enforce a non-compete provision and it is determined that the non-compete is unenforceable.

In addition, there has been movement towards restricting the use of non-competes at the federal and national level. Senators Chris Murphy and Al Franken proposed legislation that would prohibit non-competes for workers making less than $15 per hour and would require employers to notify prospective employees that they may be asked to sign a non-compete.[2]

On January 27, 2017, Maryland lawmakers proposed legislation which would invalidate a non-compete provision in an employment contract that restricts the ability of an employee who earns equal to or less than $15.00 per hour or $31,200 annually to enter employment with a new employer or to become self-employed in the same or similar business.

A bill introduced in the Nevada legislature would make a non-compete “void and unenforceable” in Nevada if it prohibits an employee from seeking employment with or becoming employed by a competitor for a period of more than 3 months after the employee’s termination.[3]

There is also pending legislation in Massachusetts that would do the following:

  • Limit non-competes to 12 months (or two years if the employee breached a fiduciary duty or unlawfully took property);
  • Prohibit enforcing non-competes against certain categories of workers, such as non-exempt employees, students, and employees terminated without cause or laid off;
  • Generally, prohibit courts from “blue penciling” or reforming overbroad non-competes unless the provisions comply with certain safe harbors defined in the bill;
  • Require consideration independent of continued employment for non-competes entered into after commencement of employment;
  • Limit choice of law provisions for Massachusetts residents and employees;
  • Employer must provide notice, and non-compete must be in writing and expressly state that employee has right to counsel; and
  • Employer must review non-compete with employee at least once every three years and provide notice of intent to enforce within ten days of termination of the employment relationship.[4]

Based upon the legislative changes, both actual and prospective, an employer may want to carefully consider whether it is prudent to require employees to sign an agreement with non-compete language. If an employer believes that a non-compete is necessary, they should carefully consider tailoring the language to the particulars set forth in the New York and Massachusetts proposed legislation.

[1] A.G. Schneiderman Proposes Nation’s Most Comprehensive Bill To Curb Widespread Misuse Of Non-Compete Agreements

[2] Sen. Franken Introduces Bill to Ban Non-Compete Agreements for Low-Wage Workers

[3] Which States Are Likely to Enact Laws Restricting Non-Compete Agreements in 2017?

[4] Massachusetts non-compete legislation back in play

Alan Krystal


Alan Krystal

Alan H. Krystal, P.C.
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