Re-examining Noncompetes
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Re-examining Noncompetes

Recent federal and state levels actions suggest more changes ahead pertaining to the enforceability of noncompete agreements and other restrictive covenants.

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February 14, 2022

While 2021 brought major changes to the workplace with respect to mask and vaccination mandates, recent actions taken by federal and state legislatures suggest that even more changes are coming in 2022, one of which pertains to the enforceability of noncompete agreements and other restrictive covenants.

In July 2021, President Biden issued an executive order encouraging the FTC to curtail the unfair use of noncompete agreements. To date, the FTC has not issued any new regulations in that regard, though it did recently release its draft Strategic Plan for Fiscal Years 2022-2026 in which it listed “increase use of provisions to improve worker mobility including restricting the use of non-compete provisions” as a goal.

While substantive Federal action remains pending, a number of states have taken matters into their own hands, promulgating new laws that significantly restrict the use of noncompete agreements:

  • Nevada’s recent amendment to the Nevada Unfair Trade Practice Act took effect in October 2021, prohibiting non-competes for hourly employees and prohibiting employers from bringing lawsuits to restrict former employees from providing services to former customers so long as the former employee did not solicit the former customer. Illinois passed a similar bill which went into effect on January 1, 2022, which prohibits non-competes for employees earning less than $75,000 per year and non-solicitation agreements for employees earning less than $45,000 per year.
  • Colorado has taken a more stringent approach, voiding non-competes and non-solicitation agreements with certain exceptions, and making conduct that could be deemed a threat or other means of intimidation to prevent a former employee from engaging in a lawful occupation as a misdemeanor subject to jail time.

As new legislation is enacted, employers should evaluate whether and to what extent their non-competition and non-solicitation agreements are enforceable in the jurisdictions in which they operate and whether they have taken appropriate steps in jurisdictions with minimum earnings thresholds, particularly those in which thresholds are adjusted annually such as Maine, Rhode Island and the State of Washington, which took effect on January 1, 2022 or will take effect in early 2022.

Sean Riley is a Partner in Freeman, Mathis and Gary LLP's Pittsburgh office and also works in the Philadelphia and Cherry Hill offices on a regular basis in handling his regional practice. His ability to evaluate claims and develop thoughtful strategies and themes repeatedly has led to successful outcomes in state and federal courts.