Non Compete Agreements

A non-compete clause is a term used in contract law under which one party (usually an employee) agrees not to enter into or start a similar profession or trade in competition against another party (usually the employer). Some courts refer to these as “restrictive covenants.” As a contract provision, a CNC is bound by traditional contract requirements including the consideration doctrine. The use of such clauses is premised on the possibility that upon their termination or resignation, an employee might begin working for a competitor or starting a business, and gain competitive advantage by exploiting confidential information about their former employer’s operations or trade secrets, or sensitive information such as customer/client lists, business practices, upcoming products, and marketing plans.

However, an over-broad CNC may prevent an employee from working elsewhere at all. English common law originally held any such constraint to be unenforceable under the public policy doctrine. Contemporary case law permits exceptions, but generally will only enforce CNCs to the extent necessary to protect the employer. Most jurisdictions in which such contracts have been examined by the courts have deemed CNCs to be legally binding so long as the clause contains reasonable limitations as to the geographical area and time period in which an employee of a company may not compete

Solutions:

  • Make out-of-state and/or out-of-country non-compete agreements void
  • Only apply non-compete agreements to certain management level position, salary ranges and/or certain industries
  • The non-compete agreement could be limited in time frame, business scope, and geographic scope to what is reasonably required (similar to Canada)

Texas Constitution
Code – Business and Commerce
Chapter – 15 Monopolies, Trusts and Conspiracies in Restraint of Trade
Section – 15.5 Criteria for enforceability of covenants to not compete
Section – 15.52 Preemption of other law

Washington Examiner – It’s time for states to ban non-competition agreements

The National Law Review – New Connecticut Statute Restricts Physician Non-Compete Agreements

The National Law Review – Companies on Notice as White House Releases Report on Non-Competes

The National Law Review – Utah Non-Compete Bill Passes In Scaled-Back Form

National Law Review – New Rules for Nevada Noncompetes: Nevada Companies Must Review Their Noncompete Agreements

Brookings – Leveling the playing field for workers by reforming non-competes

Slate – Ban Non compete Agreements. Do It Now

EPI – The White House attacks the spread of abusive non-compete agreements

Vox – How the White House wants to make the rest of the country more like Silicon Valley

Vox – Job hopping helped Silicon Valley thrive. So why do other states restrict it?

Wall Street Journal – Litigation Over Non compete Clauses Is Rising

Wall Street Journal – Noncompete Agreements Hobble Junior Employees

Deseret News – Utah lawmakers pass controversial bill on non compete contracts

Albuquerque Journal – New law limits doctors’ non-compete clauses

Huffingtonpost Business – Jimmy John’s ‘Oppressive’ Non compete Agreement Survives Court Challenge

Fortune – Hawaii ban on non competes leaves out a huge chunk of workers

Geek Wire – Bill to ban non-compete deals stalls in Washington state after opposition from business groups

New York Times – Non compete Clauses Increasingly Pop Up in Array of Jobs

New York Times – Job Contracts With Non compete Teeth

Business Insider – Amazon removes crazy non-compete clause from hourly workers’ contracts

Think Progress – Amazon Gets Rid Of Strict Non-Compete Clause For Contract And Temporary Employees

WBUR – House Speaker DeLeo Pledges To Limit Non-Compete Agreements

The Salt Lake Tribune – Op-ed: Non-compete agreements needlessly stifle innovation

Inc – The Case Against Non-Compete Agreements

CNBC – Are non compete clauses getting out of control?

The Atlantic – How Companies Kill Their Employees’ Job Searches

Harvard Business School – Non competes Push Talent Away

Harvard Business Review – Non compete Clauses Punish the Wrong Party

Harvard Business Review – How Non competes Stifle Performance

Boston Globe – Time to get rid of ‘non compete’ agreements

Bloomberg – Non compete Clauses Make Your Economy Sick

Chicago Tribune – Illinois AG sues Jimmy John’s over noncompete pacts; chain ‘disappointed’

Fast Company – What You Need To Know Before Signing A Noncompete Agreement

Houston Chronicle – The dangerous workplace practice behind Buc-ee’s lawsuit against a former worker

The American Prospect – Fining Teachers for Switching Schools