Recent Non-Compete Trends

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Recent Non-Compete Trends

Due to the fact that there is no federal law regarding non-compete or non-solicit agreements, each state passes its own legislation, leading non-compete laws to constantly evolve in both legislatures and the courts. Since the courts inevitably wrestle with interpreting these laws (or developing their own common laws), judicial responses can be very divergent, so much that different interpretations of non-compete laws can even exist within the same city.

For example, Illinois state trial and appellate courts have consistently enforced a two-year rule which states, if an employee works for an employer for less than two years—and receives no other benefit for the job—the non-compete agreement is not enforceable. But the Illinois Supreme Court has not confirmed this rule. And since federal courts in Illinois have predicted the Illinois Supreme Court will eventually reject it, the federal courts have not consistently applied the two-year rule. This means that if there are two employees based in Chicago, one who has a case in state court might have a non-enforceable agreement, whereas an employee in federal court with a very similar fact pattern might be bound by the agreement.

Idaho provides another example. In 2016, Idaho passed a law making it easier to enforce non-compete agreements. It stated that if a “key” employee or an independent contractor violated a non-compete agreement, there was a “rebuttable presumption of irreparable harm.” This shifted the burden to the employee or independent contractor to establish that the employer’s legitimate business interests were not harmed. Just two years later, the state passed a new law shifting the burden back to employers, making enforcement of agreements more challenging.

The most significant recent change is a new law passed in Massachusetts. The law attempts to protect low-wage and younger employees who do not have access to critical information, and also makes it harder (and more expensive) to enforce non-compete agreements against key executives. The law mandates that an employer provide garden leave (a period of paid leave before exiting a company) or some other consideration to an employee. The employer must pay the employee at least 50% of the employee’s highest salary over the last two years of the employee’s job, or some other consideration that the parties agree upon.

Because of the changing nature of these laws and their variable judicial interpretation, an experienced employment attorney can help properly advise both employees and employers on whether an agreement might be enforceable. This advice is helpful at the time of on-boarding, but also when it comes time to separate. If you have questions about non-compete agreements or related matters, contact us today.