non-compete agreement

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On March 1, 2022, Colorado Senate Bill 21-271 (SB 21-271) goes into effect. This new law will make the violation of a number of statutes, including Colorado’s non-compete law, C.R.S. § 8-2-113, a criminal offense, specifically a class 2 misdemeanor. See Colorado Senate Bill 21-271, Section 81.

In Colorado, covenants not to compete that restrict the right of any person to receive compensation for the performance of skilled or unskilled labor are void unless one of the following four exceptions are met:

  1. Any contract for the purchase and sale of a business or the assets of a business
  2. Any contract for the protection of trade secrets
  3. Any contractual provision providing for recovery of the expense of educating and training an employee who was employed by the employer for less than two years
  4. Executive and management personnel and officers and employees who constitute professional staff to executive and management personnel

Continue Reading Violations of Colorado’s non-compete statute to become a criminal offense

On July 9, 2021, the Biden Administration issued a sweeping Executive Order called Promoting Competition in the American Economy (Order). Although it does not immediately change the current legal landscape governing non-compete agreements (or any other aspects of U.S. antitrust enforcement), the Order encourages the Federal Trade Commission (FTC) to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility”. In the wake of the Order and other calls for more rigorous enforcement of employee non-compete and similar restrictive covenants, many within the business community wonder if a federal crackdown on non-compete agreements is coming. We address this issue below, and discuss steps employers may want to consider in light of the potential changes ahead.

Brief summary

According to the Fact Sheet accompanying the Order, roughly half of private-sector businesses require at least some employees to sign post-employment non-compete agreements, affecting an estimated 36 to 60 million workers. On multiple occasions over the past decade-plus, there have been calls for federal agencies to investigate and curtail the use of such agreements. President Biden’s Order is the most recent, and potentially significant, development in this area. He had vowed during his campaign to “eliminate all non-compete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets.” The Order is a further step towards fulfilling his campaign promise.

According to the White House, the Order “includes 72 initiatives by more than a dozen federal agencies to promptly tackle some of the most pressing competition problems across our economy.” One provision in the Order takes direct aim at non-competes:

. . . the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.

The language in the Order is not as strident as the wording in the Fact Sheet (which encourages the FTC to “ban or limit” non-compete agreements). But it certainly is expansive, targeting any “other clauses or agreements that may unfairly limit worker mobility.” We do not know if the FTC will follow the President’s lead and issue regulations addressing non-compete and similar agreements. But, at a minimum, we anticipate that employee non-compete, non-solicitation, no-rehire, and similar restrictive covenants will receive closer scrutiny by the Biden Administration, and that stricter enforcement of such agreements is very possible.
Continue Reading What’s all this talk about federal regulation of non-compete agreements?

California has long been known as a state that bans post-employment non-compete and customer non-solicitation agreements for its employees, absent very limited exceptions related to the sale of a business and trade secret protection. Employee non-solicitation provisions were believed to be the last post-employment restrictive covenant that California law still generally allowed, assuming they were properly drafted. Now, because of two recent California court decisions, even inclusion of limited employee non-solicitation provisions needs to be reconsidered.

The legal landscape until November 2018

Within its Business and Professions Code, California has a specific legislative ban on provisions that restrain anyone from engaging in their lawful profession. In 2008, the California Supreme Court in Edwards v. Arthur Andersen LLP specifically held that post-employment non-compete and customer non-solicitation provisions were disallowed under California law regardless of their scope or reasonableness. Because of the California Supreme Court’s silence as to employee non-solicitation provisions, the legal consensus has largely been that California decisions pre-Edwards, which allowed limited employee non-solicitation provisions, were likely still good law. In particular, the 1985 California Court of Appeals decision Loral Corp. v. Moyes allowed a one year post-employment employee non-solicitation provision. Therefore, these provisions have remained staples of California employment agreements.Continue Reading Time to reconsider California employee non-solicitation provisions