The answer varies from state to state, as each state has its own rules regarding non-compete agreements.
In Texas, the reason for termination of employment – whether it was for cause, without cause, a layoff, a reduction in force, or any other reason – does not affect the enforceability of a non-compete agreement. Thus, just because an employee was laid off, does not mean that their non-compete agreement became invalid.
That being said, given the massive nature of layoffs and the drastic reduction in job opportunities, the courts will be scrutinizing very carefully the reasonableness of any non-competition and non-solicitation restraints. Now, more than ever, employers will need to be able to explain what legitimate business interests justify certain geographic restrictions on departed employees. Understanding what the company is required to prove under the law will be key to obtaining injunctive relief.
Additionally, many courts no longer hold in-person hearings, which mean that obtaining a temporary restraining order may now be done via submission only or via a video-conference with the court. Any applications for injunctive relief and the evidence attached in their support will be scrutinized more closely for procedural and substantive defects.
Texas employers who have employees in other states or who are hiring employees from other states should be aware of the following:
- In Illinois, non-competition agreements may be viewed as unenforceable when an employee is terminated without cause or in bad faith.
- In Massachusetts, employers of laid off employees must pay at least 50% of the employee’s highest base salary during the prior two years during the restrictive period or “other mutually-agreed upon consideration.
- In New York, non-competition agreements are unenforceable when en employee is terminated without cause.
- In Pennsylvania, the reason for termination of employment is a factor in deciding whether a non-competition agreement is enforceable or not.
- In Washington, employers of laid off employees must pay employees’ base salary for the duration of the enforcement period.
BOTTOM LINE: Employers should not assume that non-competition agreements are no longer enforceable and must carefully approach enforcement of such agreements against departing employees as well as the hiring of new employees who may be still bound by non-competition agreements with their former employers. When in doubt, they should seek legal assistance.
Leiza Dolghih is a labor and employment board certified partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108.