New year, new laws, new issues:
First, at the state level…
A number of states have modified their noncompete laws last year:
- Florida: banned noncompetes for specialist physicians in certain underserved communities
- Maine: banned noncompetes for workers earning less than approximately $50,000, required advance notice that a noncompete will be required and a six-month minimum period of employment, imposed a $5,000 per violation fine, and took some cues from the new Massachusetts law
- Maryland: banned noncompetes for low-wage workers
- New Hampshire: banned noncompetes for non-tipped workers earning less than or equal to $14.50 per hour
- North Dakota: expanded, or at least clarified, the scope of the exemption permitting noncompetes in the context of a sale of business
- Rhode Island: overhauled (sort of) its law (based on the new Massachusetts law) effective January 15, 2020, and banned noncompetes for “low-wage employees” (i.e., those earning less than or equal to $31,255, plus $11,050 for each additional person in the house-hold) and certain others (most significantly, employees who are classified as nonexempt under the Fair Labor Standards Act, 29 U.S.C. 201-219)
- Utah: replaced the four-year maximum term for a contract in the broadcasting industry of which a noncompete is a part to a term “of reasonable duration, based on industry standards, the position, the broadcasting employee’s experience, geography, and the parties’ unique circumstances”
Particular note should be paid to changes in the two other states that made changes: Oregon and Washington, whose changes became effective as of January 1, 2020:
- Oregon. The new law requires employers to provide employees with a signed, written copy of their noncompete within 30 days after their termination date. Failure to do so will render the noncompete voidable and unenforceable by an Oregon court.
- Washington. The new law bans noncompetes for persons earning less than certain thresholds ($100,000 for employees and $250,000 for independent contracts, both subject to future increase).
In addition, the new law:
- requires certain advance notice of a noncompete;
- requires “independent consideration” for a noncompete entered post-commencement of employment;
- prohibits the use of a noncompete against employees who are laid off, unless the employer pays the employee’s base salary (less any compensation the employee earns elsewhere) during the restriction;
- establishes a presumption (rebuttable by clear and convincing evidence to the contrary) that noncompetes with a duration longer than 18 months are unreasonable and unenforceable; and
- applies Washington law if the employee “is Washington-based.”
The law also prohibits most “no-moonlighting” provisions to the extent the employee “earn[s] less than twice the applicable state minimum hourly wage . . . .”
The law applies not only to employees, but imposes restrictions on agreements applicable to independent contractors and franchisees as well. As to franchisees, the limitations are focused on only no-raid (i.e., nonsolicitation of employees) provisions.
The law also voids any noncompete that violates the new law – even by simply requiring that the dispute be litigated outside of Washington state.
Finally, the new law makes its violation an unfair business practice and subject the violator to actual or statutory ($5,000) damages, as well as attorneys’ fees, expenses, and costs, for a violation, and allows a “person aggrieved by a noncompetition covenant” (i.e., the employee), as well as the Washington AG, to “pursue . . . relief” for a violation. Particularly noteworthy, this applies even if the agreement is reformed and then enforced.
The current state of the law in all 50 states is available in our up-to-the-minute 50 State Noncompete Chart.
Second, at the federal level…
Although there have been a variety of efforts to shift the legislative battleground over noncompetes to the federal arena, most of the recent activity has involved the following three entities:
- The United States House Committee on the Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law, which held a hearing on October 29, 2019, on “Antitrust and Economic Opportunity: Competition in Labor Markets.” A summary is available here. The Subcommittee seems to be looking to the FTC at the moment.
- The United States Senate Committee on Small Business and Entrepreneurship, which held a hearing on November 19, 2019, on “Noncompete Agreements and American Workers.” A summary is available here. (I submitted written testimony with the help of Erika Hahn, to address some of the problems I saw with the hearing and to make recommendations for a moderate legislative approach.) Additional hearings are likely to follow.
- The FTC, which will be conducting a “Workshop on Non-Compete Clauses Used in Employment Contracts” on January 9, 2020. The latest on that here (and more background here).
Watch for more changes to noncompete and trade secrets laws this year. In Massachusetts, for example, there are two bills concerning noncompetes, one to exempt physician assistants from noncompetes and the other to clarify what it means to be terminated without cause under the new law.
I would also not be surprised if we saw a bill to clarify garden leave, or at least a case providing some insight. See Consideration under the New Massachusetts Noncompete Law: Compromise Happens and the supplement: Consideration happens, but not during garden leave.