In the employment context, the purpose of non-compete agreements is to protect the interests of the employer. It is common for a company to share its ideas and business practices with its employees, which is inevitable. A non-compete agreement prevents the employees from later using those ideas and practices for the benefit of a competing business.
The unfortunate reality is that most non-compete agreements result in a nearly insurmountable obstacle for employees seeking subsequent employment in the same field. A recent trend in states considering legislation that would limit or even restrict such agreements may be encouraging.
Several states addressing the issue of non-compete agreements
In 2016, there were several states that enacted laws designed to impose varying limitations on non-compete agreements in the employment context. Those states include Connecticut, Illinois, Rhode Island and Utah. The question is whether additional states will follow suit. Here are some examples of proposed legislation in other states that may be passed in the coming year.
Idaho considering House Bill 61
House Bill 61 was proposed in Idaho in January 2017. Idaho's current legislation governing non-compete agreements makes it easy for employers to enforce these agreements on "key personnel" (the top 5% highest paid employees) as well as independent contractors. The proposed law would eliminate the rebuttable presumption of irreparable harm to the employer when there is a breach of a non-compete agreement.
Maryland's House Bill 506
Maryland's House Bill 506, as proposed, would make void any non-compete provision in an employment contract that restricts the ability of an employee within a specified salary or hourly wage range from future employment in a same or similar business. Specifically, the law would apply to employees who earn equal to or less than $15.00 per hour or $31,200 annually.
Massachusetts proposed Bill SD.1578
Massachusetts proposed legislation seeks to impose various limitations on the scope of non-compete agreements. Among other things, the new law would limit the temporal scope of non-compete agreements to 12 months from the date of termination of employment. If an employee breached his or her fiduciary duty or has unlawfully taken property belonging to the employer, then the temporal scope would increase to 2 years. The law would also prohibit non-compete agreements against nonexempt employees, students, employees terminated without cause, and employees 18 years or younger.
Nevada considering A.B. 149
Nevada's newly proposed bill would make a non-compete agreement "void and unenforceable" if it prohibits an employee from seeking employment with or becoming employed by a competitor for any period longer than 3 months after the employee's separation from the company. This limitation is much shorter than most. Furthermore, a willful violator of the law would be guilty of a gross misdemeanor punishable by a fine of not more than $5,000, as well as an administrative penalty of up to $5,000 for each violation.
If you need assistance in negotiating an employment agreement, or if you have any questions regarding your employment rights, please contact Wrady & Michel, LLC, either online or by calling us at (205) 265-1880.