Restrictive Covenants

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Imagine paying millions to acquire a company only to later discover the restrictive covenants in the employment agreements of high-level executives were unenforceable. That’s precisely what happened in Intertek Asset Integrity Management. In Intertek, Texas’s Twelfth Court of Appeals held a company Vice President’s non-compete was unenforceable by the purchaser-entity because the underlying employment agreement lacked an assignment clause. Such language, if included, would have permitted the seller to transfer the contract’s rights and obligations without the employee’s consent. Assignability clauses are frequently buried in the “miscellaneous” section of agreements and—too often—omitted. Businesses who overlook these terms in Texas employment contracts do so at their peril.…

Continue Reading Missed Assignments: The Importance of Assignability Clauses in Restrictive Covenant Agreements

Courts and state legislatures continue to take aim at post-employment non-competes. In a companion blog, we recently detailed the Federal Trade Commission’s proposed rule banning post-employment non-competes. However, for years (and even under the FTC’s overreaching proposed rule), non-competes in the sale of business context have generally received less scrutiny.…

Continue Reading Buyer Beware: Delaware Declines to Enforce Sale of Business Non-Compete

On January 5, 2023, the Federal Trade Commission (“FTC”) announced a broad proposed rule that would ban employers from imposing noncompete clauses on their workers. The FTC press release announcing the proposed rule states that noncompete clauses—which apply to about one in five American workers—suppress wages, hamper innovation, block entrepreneurs from starting new businesses and reduce American workers’ earnings between $250 billion and $296 billion per year.[1] The proposed rule would prohibit employers from: (1) entering into or attempting to enter into a noncompete with a worker; (2) maintaining a noncompete with a worker; or (3) representing to a worker, under certain circumstances, that the worker is subject to a noncompete. The term “worker” covers paid staff in addition to independent contractors and unpaid staff. The proposed rule does not apply to noncompete provisions imposed upon 25% owners of a business in transaction documents related to the sale of the business. The proposal is subject to a 60-day public comment period commencing when the Federal Register publishes the proposed rule.…

Continue Reading FTC Seeks to Ban Noncompete Agreements in Employment Contracts

On July 27, 2022, Mayor Muriel Bowser signed into law the Non-Compete Clarification Amendment Act of 2022, scaling back certain aspects of D.C.’s original Ban on Non-Compete Agreements Amendment Act of 2020. As we previously reported, the original ban included some of the most substantial non-compete restrictions in the country, including prohibiting the use of non-compete agreements for nearly all employees working in D.C. and banning anti-moonlighting policies. Here are some key takeaways from the Amendment:…

Continue Reading The District of Columbia Revises Ban on Non-Competes

On August 10, 2022, Colorado House Bill 22-1317 became law. Following the national trend of limiting employer use of non-compete and non-solicit covenants, Colorado now prohibits the use of non-competes and non-solicits except in the sale of business context and with “highly compensated” workers. The law also provides specific notice requirements and imposes costly penalties for non-compliance. The law’s requirements and penalties are not retroactive. The key requirements of the new law are as follows:…

Continue Reading Colorado’s New Restrictive Covenant Law Now Effective

Following a nationwide trend, New Jersey recently joined a growing list of states seeking to limit the use of non-compete and non-solicitation agreements by employers.…

Continue Reading What Employers Need to Know About Newly Proposed Non-Compete Legislation in New Jersey

Since President Biden’s July 2021 direction to the Federal Trade Commission (“FTC”) to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility,” the FTC has ratcheted up its scrutiny of and investigations into non-compete agreements and other restrictive covenants. Now, the FTC has expanded beyond post-employment restrictive covenants to tackle “sale of business” non-competes. Most recently, the FTC voted in favor of a deal-changing proposed order against ARKO Corp. related to its 2021 acquisition of sixty fuel outlets from Corrigan Oil Company.…

Continue Reading Buyer (and Seller) Beware: The FTC Is Coming for Your M&A Non-Competes

Over the past two years, employee mobility seems to be at an all-time high.  In fact, the labor market is so fluid that pundits and experts often refer to it as the “Great Resignation.”  Although employee mobility can be a great opportunity for both employees and prospective employers, employers hiring new employees should always beware of potential problems such as restrictive covenants, which may follow an employee to a new job. …
Continue Reading Void vs. Voidable: The Distinction That Can Make or Break a Tortious Interference Claim in Light of the Great Resignation

Illinois recently passed legislation amending the Freedom to Work Act (the “Act”), following a growing trend of states imposing greater restrictions on employers’ use and enforcement of non-competition and non-solicitation covenants.
Continue Reading Illinois Imposes New Restrictions on Non-Competes and Non-Solicits

On August 13, 2021, Governor Pritzker signed into law a bill amending the Illinois Freedom to Work Act governing restrictive covenants and non-competition agreements.  On May 30, 2021, the Illinois General Assembly passed a bill codifying existing noncompete law in some respects and modifying it in others.  We detailed the Bill in a prior blog here.  The Bill is now the law.  The amendments become effective on January 1, 2022 and will not apply retroactively.
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Continue Reading Illinois Governor Signs Non-Compete Legislation

Following a nationwide trend, Illinois has proposed significant legislation affecting employee restrictive covenants, such as non-compete agreements.  While the proposed law does not dramatically change most aspects of the patchwork of Illinois common law, it adds certainty to long-questioned areas and imposes several threshold hurdles and eligibility factors to the test for assessing enforceable restrictive covenants.
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Continue Reading What Employers Need to Know About New Non-Compete Legislation in Illinois