Many companies have been announcing layoffs recently. Since every 5th person in the US workforce has a non-compete agreement (according to the Journal of Law & Economics), a lot of the workers that are being laid off are likely to have some sort of non-compete restraints.
Naturally, many employees assume that because they were laid off, their non-compete restraints are no longer valid. However, that assumption is incorrect.
While some states automatically make non-compete agreements invalid if a worker is terminated “without cause,” laid off, or is part of a reduction in force, many others do not. For example, in Texas, generally-speaking, the reason for termination does not matter. In fact, in many Texas employment agreements, the non-compete clause will expressly state that the non-compete restraints will remain valid regardless of the reason for the termination of employment.
This map shows which states will not enforce non-compete agreements if an employee is laid off*:
Thus, employees who are being laid off should not assume that their non-compete restraints will automatically terminate. Instead, they should do the following:
- Obtain a copy of the non-compete agreement to determine what the restraints are;
- Determine what is the law in their state regarding such agreements / consult with an attorney if necessary;
- If the employer says that they will not enforce the non-compete restraints, have the employer confirm that in writing;
- If the employer offers a severance payment in exchange for signing a severance agreement, make sure that such agreement does not contain non-compete restraints or other problematic language;
- Consult with an attorney, if not sure what to do.
CONCLUSION: Even if a layoff does not automatically invalidate an employee’s non-compete agreement, other circumstances may render the non-compete agreement invalid. An employee seeking to avoid their non-compete restraints, should consult with an attorney to determine if an agreement is enforceable.
Leiza Dolghih is the founder of Dolghih Law Group PLLC. She is board certified in labor and employment law and has 16+ years of experience in commercial and employment litigation, including trade secrets and non-compete disputes. You can contact her directly at leiza@dlg-legal.com or (214) 531-2403.
* The map shows the state of laws in 2021. Some of the laws may have changes since then. You should consult with an attorney in your jurisdiction to determine if your particular non-compete is rendered invalid by a lay off.