This year, California, Illinois and Nevada amended their non-compete statutes to help protect the employees’ right to change employers vis-à-vis the employers’ right to restrict unfair competition. Idaho, Maryland, Massachusetts, New York, and Washington considered various amendments, but were unsuccessful in signing them into law, which means they will probably try again in 2018.
An amendment to the California Labor Code, which became effective on January 1, 2017, prohibits employers from requiring employees to litigate or arbitrate employment disputes (1) outside of California or (2) under the laws of another state. The only exception is where an employee was individually represented by a lawyer in negotiating his employment contract.
Penalties apply to an employer who requires a California employee who primarily works and resides in California to sign “as a condition of employment,” an agreement with a provision that requires the employee to adjudicate disputes arising in California in a forum outside of California or under the law of another state.
Illinois passed the Freedom to Work Act, effective January 1, 2017, which bars non-compete agreements for workers who earn less than the greater of the federal, state or local minimum wage, or $13.00 an hour.
In June of this year, Nevada amended its non-compete statute to state that a non-competition covenant may not restrict a former employee from providing services to a former customer or client if: (1) the former employee did not solicit the former customer or client; (2) the customer or client voluntarily chose to leave and seek the services of the employee; and (3) the former employee is otherwise complying with the non-competition agreement.
The statute also now provides that if there is a reduction in force, reorganization, or similar restructuring, the laid-off employee’s non-competition agreement is only enforceable during the time in which the employer continues to pay the employee’s salary, benefits, or equivalent compensation to the employee.
Finally, the statute now allows “blue-penciling” and gives the Nevada courts the ability to strike or modify unreasonable terms or provisions from a non-compete agreement and enforce the revised agreement.
More and more states are trying to strike a balance between the workers’ right to change employers and the companies’ right to protect their business interests and goodwill. The end result is a patchwork of non-compete statutes that impose different requirements on employers that operate in different states. Companies that have employees in several states should consult with legal counsel to make sure that their post-employment covenants are enforceable with respect to all of their employees, regardless of the location.
Leiza represents companies in business and employment litigation. If you need assistance with a business or employment dispute contact Leiza for a confidential consultation at Leiza.Dolghih@lewisbrisbois.com or (214) 722-7108 or fill out the form below.