Recent Changes in Noncompete Law Around the Country

This year, we have seen several dramatic changes to noncompete laws around the country. The following are some of the highlights:

California:  Many people thought noncompetes were DOA with the California Supreme Court’s 2008 Edwards v. Arthur Andersen decision. However, the decision (footnote 4) did expressly leave open the question of whether noncompetes could be used to protect trade secrets. Some people saw that limitation on the scope of the decision as a sign that noncompetes to protect trade secrets were alive and well, while others saw the exception as potentially swallowing the rule, and therefore expecting California courts to reject the exception. Well, on July 1, 2011, the United States District Court for the Northern District of California, San Jose Division, waded into the controversy. Relying on a “lengthy line of cases [that] consistently held former employees may not misappropriate the former employer’s trade secrets to unfairly compete with the former employer,” the Court issued a decision coming down on the side of enforcing the noncompete. A nice summary of the decision (Richmond Technologies, Inc. v. Aumtech Business Solutions) can be found on my former firm’s blog, Trade Secret/Noncompete, here.

Colorado:  One of the recurring issues in noncompete law is whether a company must give an at-will employee something of value (in legal parlance, “consideration”) in exchange for obtaining a noncompete (or other restrictive covenant) after the employee has already been working for the company. Until May 2011, the answer in Colorado was that consideration (beyond merely allowing the employee to keep his job) was necessary. However, the Colorado Supreme Court changed all of that in its May 2011 decision, Lucht’s Concrete Pumping, Inc. v. Horner. Additional consideration is no longer necessary, as long as the company neither intends to immediately fire the employee after obtaining the agreement nor in fact fires the employee shortly after obtaining the agreement.

Georgia:  After some significant confusion, Georgia law officially changed this year via a state constitutional amendment and a state law implementing the amendment. As a result of the change, Georgia courts will be able to reform noncompetes that are overly broad, and which, in the past, a court would have had to invalidate as a result. See Georgia Noncompete Statute at Last.

Texas:  Until recently, Texas noncompete law differed markedly from other states insofar as the consideration given for a noncompete in Texas had to relate to the legitimate business interest sought to be protected by the noncompete. In June 2011, the Texas Supreme Court issued a decision (Marsh v. Cook) eliminating that requirement, bringing Texas noncompete law more in line with other states’ laws. A summary of the decision is available here.

Other Changes Afoot: As noted here by my former partner and (still) friend, David Sanders, this year, there were three state legislatures looking to change their noncompete law, GeorgiaIllinois, and Massachusetts. As noted above, Georgia completed its process (following David’s post). A nice summary of the Illinois noncompete bill is available on my old firm’s blog here. A detailed summary of the Massachusetts noncompete bill is available here. (Also, as I am the lead drafter and advisor on the Massachusetts bill, I am happy to provide additional information on request.)

50 State Chart:  For ease of reference, I have prepared a chart summarizing the current state of noncompete law around the country. The current version is available on my firm’s website here. (Note that I do update it as changes in the law occur, so please check back or email me to request automatic updates.)