The End Is Near (for non-competes)!

Within the last 6 months I have had interesting discussions around the word “non-compete.” It has come up in three offers I’ve worked on recently. Most of us never read every word of our employment contract—I know I didn’t. But there are some key words in your contract that could severely impact your career. Especially in pharma/biotech—this industry is notorious for non-competes in varying forms. I have even talked to people who left their jobs to get out of the non-compete.

Approximately 18% of American workers are bound by non-compete agreements, with at least 38% saying they agreed to at least one in the past. Only 10% of employees negotiate over their agreement. See this website for more information.

The Federal Trade Commission (FTC) plans to ban noncompete agreements. As of January 5th, 2023, the agency has unveiled a notice of proposed rulemaking that, if finalized, would make it illegal for an employer to do the following:?

• Enter into or attempt to enter into a non-compete agreement with a worker?
• Maintain a non-compete agreement with a worker?
• Represent to a worker under certain circumstances that the worker is subject to a non-compete agreement?

The rule would also require employers to rescind existing non-compete agreements and actively notify workers that they are no longer in effect. The FTC has cited research that shows non-compete agreements reduce competition in labor markets resulting in reduced wages for all workers. The agency estimates that banning non-competes would increase workers’ total earnings by 250-296 billion per year.?

The FTC gives employers 60 days to comment (from Jan 5th, 2023). After the comment period ends, the FTC will reply to comments and possibly make any revisions. Once revisions are made, a “final draft” will be published with a formal effective date.?

Non-competes are becoming less common throughout the country, partly due to state legislative and court action. But what makes this confusing is that every state is different with a few slight variables: income, time away from company, industry (broadcasters/physicians are exempt in many states), and title.?

As of right now (January 2023), there are NO federal or uniform laws governing the interpretation of non-competes. Non-competes are enforceable where the employee lives and NOT where the company is headquartered.?

At Cascadia Search Group we have not seen legal action taken against a previous employee who violated a non-compete agreement in the last 10 years. There are some companies we know are more notorious than others, but even those companies have pulled back.?

If we’re in this industry for patients, wouldn’t we want to drive innovation faster? Do non-competes hinder innovation? It has been proven that it hinders compensation significantly…?

Does my state have a non-compete? The answer is not as easy as yes or no, so see the summary of each state’s law below:?

Alabama: Through written contracts, Alabama employers may require certain employees to comply with reasonable post-employment restrictions on competition with the employer or on solicitation of the employer's customers?

Alaska: Employment contracts in Alaska must meet certain conditions to be valid

Arizona: Arizona law does not provide any requirements for an employment contract, but does define when an employment contract negates the presumption of at-will employment?

Arkansas: Arkansas will enforce employment contracts whose terms are sufficient to demonstrate the mutual assent of the parties.

California: Employers that enter into written contracts with employees for various reasons should ensure that they understand and include certain provisions

Colorado: Employment contracts in Colorado are subject to the statute of frauds and courts will recognize an express covenant of good faith and fair dealing in the employment context

Connecticut: Connecticut recognizes claims for promissory estoppel as an exception to at-will employment. Under Connecticut law, restrictive covenants that are reasonable in time and scope generally will be enforced.

Delaware: Delaware courts will enforce a noncompete agreement under certain circumstances.

DC: The District of Columbia prohibits employers from requesting or requiring an employee working in the District of Columbia to agree to a noncompete agreement or policy.?

Florida: Restrictive covenants, including noncompete and nonsolicitation agreements, that are reasonable in time and scope generally will be enforced.

Georgia: Restrictive covenants are generally allowed in Georgia, so long as they are reasonable in time, geographic area, and scope of prohibited activities.

Hawaii: Noncompete, confidentiality and nonsolicitation agreements are permitted. Hawaii also follows the Uniform Trade Secrets Act with respect to trade secrets, except customer lists are not considered trade secrets.

Idaho: In Idaho, restrictive covenants must be designed to protect legitimate business interests and to extend no further than is reasonably necessary to protect those interests.

Illinois: Illinois enforces restrictive covenants, so long as the agreements are reasonable.?Chicago has requirements pertaining to employment contracts.?

Indiana: Restrictive covenants are enforceable in Indiana if they are necessary to protect an employer's legitimate interest, if the covenants are reasonable, not unduly restrictive to an employee, and not contrary to the public interest.

Iowa: Reasonable restrictive covenants are generally enforceable in Iowa and may be necessary to protect an employer from unfair competition from employees and former employees

Kansas: Kansas courts enforce restrictive covenants to protect an employer from unfair competition.?

Kentucky: Kentucky law restricts the use of certain waivers and contract provisions as preconditions of employment. Employers may enforce confidentiality nondisclosure, noncompetition and nonsolicitation agreements in Kentucky under the proper circumstances.?

Louisiana: Louisiana has laws specifically governing the enforceability of noncompetition and nonsolicitation agreements between employees and employers.

Maine: In Maine, in order to be enforceable a restrictive covenant must extend no further than is reasonably necessary to protect the employer's legitimate business interests.

Maryland: In Maryland, restrictive covenants must be designed to protect legitimate business interests and cannot extend further than is reasonably necessary to protect those interests.?

Massachusetts: Massachusetts law regulates the use and enforcement of noncompete agreements for employees and independent contractors. Massachusetts has adopted a version of the Uniform Trade Secrets Act and enforces protection of proprietary information.?

Michigan: Michigan court decisions support the enforcement of noncompete agreements if they protect a reasonable business interest.?

Minnesota: In general, Minnesota courts will not enforce employment agreements or other contracts containing noncompete provisions or contractual prohibitions against soliciting customers or employees in the absence of adequate consideration.?

Mississippi: Mississippi courts will enforce noncompete agreements, even when the only consideration offered by an employer is the employment itself or continued employment, as long as the geographic scope and duration of the agreement are reasonable.

Missouri: Missouri courts will enforce noncompetition and nonsolicitation agreements if the agreements meet six requirements.?

Montana: In Montana, restrictive covenants are disfavored and must be designed to protect legitimate business interests and to extend no further than is reasonably necessary to protect those interests.

Nebraska: Nebraska courts may enforce restrictive covenants to protect an employer from unfair competition.?

Nevada: In Nevada, restrictive covenants must be designed to protect legitimate business interests and to extend no further than is reasonably necessary to protect those interests.?

New Hampshire: Under New Hampshire law, courts will enforce restrictive covenants if the restraint is reasonable under the particular circumstances.?

New Jersey: In New Jersey, restrictive covenant must be designed to protect legitimate business interests and to extend no further than is reasonably necessary to protect those interests.?

New Mexico: Restrictive covenants in employment contracts are enforceable in New Mexico, so long as the restrictions are reasonable in duration and geographic scope.

New York: Although New York has no statute or regulation governing noncompetes in employment they must be reasonable and limited in geographic scope. Further, the type of activity restricted must be reasonably necessary to protect the employer’s

North Carolina: North Carolina courts enforce restrictive covenants if the terms are reasonable and necessary to protect certain business interests of the employer.?

North Dakota: North Dakota has laws specifically governing the enforceability of noncompetition and nonsolicitation agreements between employees and employers.

Ohio: In Ohio, restrictive covenants will be upheld if the restraint is no greater than is required for the protection of the employer, does not impose undue hardship on the employee, and is not injurious to the public.?

Oklahoma: A covenant not to compete is valid in Oklahoma only insofar as it restricts a former employee from soliciting established customers of the employer

Oregon: Oregon has specific laws governing the enforceability of noncompetition covenants between employers and employees.

Pennsylvania: Restrictive covenants are enforceable in Pennsylvania to the extent that they are reasonably necessary for the protection of the employer's protectable business interests.

Rhode Island: Rhode Island courts enforce restrictive covenants if the terms are reasonable and necessary to protect certain business interests of the employer.?

South Carolina: Under South Carolina law, restrictive covenants will not be upheld unless they are reasonable in nature and scope. Only restrictive covenants that are carefully and narrowly drafted are likely to be enforced.?

Tennessee: Tennessee courts will enforce restrictive covenants that are reasonable under the particular circumstances.

Texas: Texas has laws specifically governing the enforceability of noncompetition and nonsolicitation agreements between employees and employers.

Utah: In Utah, restrictive covenant must be designed to protect legitimate business interests and extend no further than is reasonably necessary to protect those interests.

Vermont: Restrictive covenants in Vermont are enforceable, but must be carefully designed to protect legitimate business interests, and must be reasonable in scope and duration.

Virginia: Generally, covenants not to compete are enforceable in Virginia, provided they are supported by adequate consideration and are reasonable in terms of the period of restriction and geographic scope.

Washington: Employers in Washington may use noncompete agreements if they meet the state's three-factor reasonableness test. A noncompete agreement may be preferable to a nonsolicitation agreement.?

West Virginia: Restrictive covenants must be reasonable and limited in time and scope.

Wisconsin: Under Wisconsin law, restrictive covenants that are reasonable in time and scope generally will be enforced.?Wyoming: Restrictive covenants are enforceable in Wyoming as part of a valid contract.

The above is meant to serve as guidance and NOT legal advice. I am an executive recruiter and not an attorney. I hope this can help you moving forward as you negotiate offers without the help of a recruiter.

Cheers,

NP