Lawyer Monthly - April 2022

EXPERT INSIGHT 53 APR 2022 | WWW.LAWYER-MONTHLY.COM require employees across the board, including lower-level employees, to enter into non-competes. As a result, courts are generally cautious to enforce any contract that would act as a restraint on trade and fair competition. The analysis on whether a noncompete clause is reasonable is a fact-specific inquiry, and enforceability varies by state. Some jurisdictions have enacted laws to ban or significantly restrict the use of non-competes, including disallowing non-competes for employees of certain industries or setting an income floor. For example, Hawaii prohibits non-compete clauses for “technology business“ employees. In California, non-compete clauses are invalid per se. In Washington, noncompetes are unenforceable against employees earning less than $100,000 annually. While the laws vary from state to state, the overall approach is to only enforce a non-compete if the interests of the employer, employee, and the public are well balanced. In New York, where I predominantly practice, a company seeking to enforce a noncompete clause must show that it is no greater than is required to protect the legitimate business interests of the employer, that it does not impose undue hardship on the employee, and that it is not injurious to the general public. In New York, a non-compete agreement is generally unenforceable where the termination of employment is involuntary and without cause. How will President Biden’s Executive Order on non-competes affect corporations’ use of such clauses? Post-employment restrictive covenants have always been governed by state law. However, last year, the Biden Administration issued an Executive Order that encourages the Federal Trade Commission to employ its statutory rulemaking authority to curtail the unfair use of non-compete clauses that may unfairly limit worker mobility. There is already considerable momentum behind limiting noncompetes in many jurisdictions, and the FTC will likely look to the various states to assess their approach under the Executive Order. There is still a long way to go before any FTC rules are implemented, and we would expect significant political and legal challenges to the FTC’s authority. Nonetheless, even though it is uncertain if any federal action is forthcoming, this is a good reminder that employers should start thinking about how to protect their business interests if the FTC were to limit or ban non-compete agreements. For What laws governing noncompete clauses exist in your jurisdiction and the US more widely? Employers love non-compete clauses. The vast majority of my corporate clients will choose to incorporate non-compete provisions in their employment agreements. However, non-competes are generally disfavoured by the courts. Decades ago, non-competes were used predominantly for higher-level executives. Now, many employers The typical vehicle to enforce a non-compete is to file a lawsuit for injunctive relief to immediately stop unfair competition in its tracks.

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