There has been a recent trend of states moving to limit the application of restrictive covenants, especially post-employment non-compete agreements, on employees. Within the past year, Maryland, Maine, Massachusetts, and New Hampshire have all passed legislation restricting the enforceability of non-competition agreements against low-wage earning employees. This is a growing national trend that all attorneys should monitor.
Provided below is a brief survey of states with laws restricting non-compete agreements and general guidelines for other East Coast states.
Connecticut: No state legislation restricting non-compete agreements. Case law holds that a covenant must be reasonable as relevant to time period, geographic scope, ability of employee to earn livelihood, protection to employer, and public interest.
Delaware: No state legislation. Case law holds that a covenant must be reasonable to be enforceable balancing legitimate interests of employer, ability of employee to earn livelihood, and public’s interest.
Florida: Florida statute 542.335 requires that non-compete agreements be reasonable and necessary to protect the legitimate interests of the employer. Case law applies balancing test.
Georgia: Georgia Code 13-8-53 provides, in relevant part, that post-employment contracts that restrict competition shall not be permitted against any employee who does not, in the course of his or her employment:
(1) Customarily and regularly solicit for the employer customers or prospective customers; (2) Customarily and regularly engage in making sales or obtaining orders or contracts for products or services to be performed by others; (3) Perform the following duties: (A) Have a primary duty of managing the enterprise in which the employee is employed or of a customarily recognized department or subdivision thereof; (B) Customarily and regularly direct the work of two or more other employees; and (C) Have the authority to hire or fire other employees or have particular weight given to suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees; or (4) Perform the duties of a key employee or of a professional.
Maryland: On May 25, 2019, Maryland enacted SB 328, which prohibits employers from entering into non-competition agreements with employees who earn equal to or less than $15 an hour or $31,200 annually. Under this new law, for employees earning wages at or below this threshold, non-compete agreements that “restrict the ability of an employee to enter into employment with a new employer or to become self-employed in the same or similar business or trade shall be null and void as being against the public policy of the State.” The law becomes effective October 1, 2019.
Maine: As of September 18, 2019, Maine employers are prohibited from having non-compete restrictions for any employee earning at or below 300% of the federal poverty level. Furthermore, for all employees, no non-compete can take effect before the employee has worked at least one year, or six months after signing (whichever is later). And, employee must be provided three (3) days to consider before signing non-compete.
Massachusetts: Effective October 1, 2018, Massachusetts banned non-compete restrictions for anyone classified as a non-exempt employee. To be enforceable, a non-compete agreement must also, be in writing, be signed by both employer and employee, must advise employee of right to seek legal counsel before signing, and must be provided to employee with employment offer or ten (10) business days before the state of employment, whichever is earlier. A “noncompetition agreement” is defined as “an agreement between an employer and an employee, . . . under which the employee or expected employee agrees that he or she will not engage in certain specified activities competitive with his or her employer after the employment relationship has ended.”
New Jersey: The New Jersey legislature has considered bills to restrict employer use of non-compete agreements, but nothing has passed yet. Courts will enforce non-compete agreements that are reasonable in scope and duration.
New Hampshire: passed legislation outlawing non-competes for “low wage” workers, defined as hourly rate that is less than or equal to 200% of federal minimum wage ($14.50 per hour). This law takes effect in September 8, 2019. A “noncompete agreement” is defined as “an agreement between an employer and a low wage employee that restricts such low wage employee from performing: (1) work for another employer for a specified period of time; (2) work in a specified geographic area; or (3) work for another employer that is similar to such low wage employee’s work for the employer who is party to the agreement.”
New York: No laws prohibiting non-compete agreements. A non-compete is only allowed and enforceable to the extent it (1) is necessary to protect the employer’s legitimate interests, (2) does not impose an undue hardship on the employee, (3) does not harm the public, and (4) is reasonable in time period and geographic scope.
North Carolina: Courts will enforce non-compete agreements if supported by consideration, reasonable about time and territory, and designed to protect legitimate business interest.
Pennsylvania: No legislation controlling. Will be enforced if supported by consideration and reasonable to rights of employer, employee and public interest.
Rhode Island: The Rhode Island legislature passed noncompete law on July 11, 2019 (it is not effective yet, still waiting on governor’s signature). The law will prohibit non-compete agreements with low-wage employees with average annual earnings of less than 250% of the federal poverty level.
South Carolina: Non-compete agreements will be enforceable if supported by consideration and are reasonable in not over-reaching employer’s legitimate business interests nor overly burdening employee’s ability to earn a livelihood.
Vermont: No legislation restricting non-compete agreements. Will be enforced if reasonable.
Virginia: Non-compete agreements will be enforceable if supported by consideration and are reasonable in not over-reaching employer’s legitimate business interests nor overly burdening employee’s ability to earn a livelihood.
Conclusion: Post-employment non-compete agreements are either being outlaws or facing greater judicial scrutiny. Employers should utilize them sparingly. However, employers still can protect confidential information and client relationships. Accordingly, attorneys should focus clients on Confidentiality Agreements, trade secret protection, and non-solicitation restrictions (both protecting employees and clients).
Most importantly, whenever considering any post-employment restriction, to be enforceable, it should narrowly define the post-employment restriction to protect the legitimate interests of the employer, in relationship to the services the employee provided the employer during employment, and his or her post employment opportunities.
Merritt Green, General Counsel, P.C. firstname.lastname@example.org –703-556-0411