Hostility Towards Non-Competes Continues

We previously reported on the Federal Trade Commission’s proposed rule banning non-competes.[1] The final vote on that rule has reportedly been delayed until 2024. In the meantime, two more states and the National Labor Relations Board have taken steps to outlaw non-competes.

Minnesota enacted a law making non-competes entered into or after July 1, 2023, void and unenforceable. The law defines a non-compete as “an agreement between an employee and employer that restricts the employee, after termination of the employment, from performing:

1.?????Work for another employer for a specified period of time;

2.?????Work in a specified geographical area; or

3.?????Work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.”

The law bans all such agreements, with a limited exception for the sale of a business. Minnesota is now the fourth state, along with California, Oklahoma, and South Dakota, to ban non-competes. The law can be found here at Article 6. Notably, the Minnesota law does not ban agreements prohibiting solicitation of customers or employees.

New York has taken similar steps. Last month, New York lawmakers passed legislation making non-competes unlawful if signed or modified after the bill’s effective date. Governor Kathy Hochul is now considering the bill. If Governor Hochul approves it, non-competes will be banned across the state. The bill can be found here and here. Like the Minnesota law, the New York legislation does not affect provisions prohibiting customer or employee solicitation.

And finally, in late May, the National Labor Relations Board announced its position that most non-competes violate the National Labor Relations Act, a federal law that applies to unionized and non-unionized employers. According to the NLRB’s memo, non-compete clauses can have a “chilling effect” on protected activity because employees will have a harder time finding a new job if terminated for acting together to improve working conditions. As a result, the NLRB is taking the position that non-competes in employment agreements or severance agreements with low or middle wage workers who have no knowledge about trade secrets most likely violate the Act.?The NLRB’s memo does not affect non-competes with most supervisors[2] and independent contractors as the NLRA does not apply to them. And, while this memo provides the NLRB’s position on non-competes, it serves as guidance to its Regional Directors who are investigating these sorts of issues; time will tell whether courts will uphold the NLRB’s position on non-competes. The NLRB’s memo can be found here.

???????????We are monitoring this trend and will continue to provide updates. In the meantime, employers should consult with their counsel before drafting and entering non-competes with their employees.?

?This article is for informational purposes only and should not be considered legal advice. Please consult with your legal counsel regarding any specific situation.

?Written by Christie Newkirk and Tayler Gray from Carrington, Coleman, Sloman & Blumenthal, L.L.P.

[1] The FTC’s proposed rule does not affect agreements prohibiting non-solicitation of customers and employees.

[2] Supervisors are those who have the authority to hire, fire, transfer, suspend, layoff, promote, discipline, and take similar actions.