With so much movement in the job market lately, efforts to enforce noncompete agreements have dramatically increased. It is important for employers to make sure that their documents are enforceable and that they comply with current laws and best practices.
Noncompetes exist to protect an employer’s customer relationships, confidential information and trade secrets. A company’s confidential or proprietary information and trade secrets may include intellectual property such as inventions and formulas, as well as the company’s business plans, pricing information and nonpublic customer list.
Having an employee sign a noncompete is one thing; enforcing the restriction is quite another. If the employer cannot establish that it has a legitimate business interest that requires protection, then the agreement is not likely to be enforced. Courts will scrutinize an employer’s claimed interest to ensure that it is not merely an attempt to keep its former employee from working for a competitor.
The restrictive covenant also has to be reasonable in scope, and what is considered reasonable varies from jurisdiction to jurisdiction. The current trend is for states to limit or even prohibit noncompetes in terms of time, types of employees that can be restricted, certain professions or whether an employee is terminated or quits.
The past few years have seen numerous attempts at limiting or banning noncompetes in many states – and even at the federal level, where a bill limiting noncompetes was introduced in 2021 but did not pass Congress. For example, in Rhode Island and Maine, noncompetes cannot be enforced against hourly employees and others, including students, those 18 and under, those earning less than 250% of the federal poverty level, and nonexempt employees under the Fair Labor Standards Act. Massachusetts has limited noncompetes in many respects, including a maximum time restriction of one year and requiring payment to the former employee during the restricted period. California is so far the only state to completely ban noncompetes.
The more specialized an employee’s role, the more likely it is that a noncompete will hold up if the employee leaves to work for a competitor. Higher-level, more-specialized employees typically have access to sensitive or confidential information, or have customer relationships, whereas an administrative assistant, for example, cannot hurt the employer by going to work for a competitor because their skills are interchangeable from one employer to the next. While they may have access to confidential information about customers, they typically cannot use that information in a competitive fashion.
So employers should not automatically give the same type of noncompete to every employee because that waters down the employer’s argument that the agreement is necessary and makes it less likely to be enforced.
Because of the tight labor market, employees are in a much stronger bargaining position now than a few years ago. Most tend not to want to work for an organization that puts them under an extremely restrictive noncompete agreement. Employees are likely these days to negotiate the terms of a noncompete before they accept a position.
When properly executed, reasonable in scope and put in place to support a legitimate business interest, noncompetes can be effective tools for protecting company interests and retaining talent. In this tight labor market, flexibility, customization and ensuring that the document is legally enforceable can provide an employer with some comfort when it lands its next big hire.
Joshua A. Hawks-Ladds is co-chair of the labor, employment law and employee benefits department at the law firm Pullman & Comley LLC. He leads the firm’s South Kingstown office.
