In 2022, the noncompete agreement is becoming increasingly difficult to implement or enforce due to a variety of factors: state law, trends in court findings, and pressure from the federal level. A significant number of states are passing laws to limit or completely prohibit any noncompete agreements. These laws don’t just apply to an employee signing a noncompete today. They often retroactively protect employees who signed a noncompete agreement previously. Courts in nearly every state have built track records of throwing out the agreements because they don’t want businesses to prevent employees from earning their full potential in their chosen field. Guidance surrounding noncompetes is often to review and update them with legal counsel to ensure they’re articulating a legitimate business interest in protecting client lists, products, or services. Agreements encompassing an extended period of time, too wide a geographical area, or solely focused on hobbling an employee from competing or working for a competitor are likely to be rewritten or thrown out by a judge. In part one of this two-part series, MP’s HR experts share best practices every employer should know for 2022 noncompete agreements.
2 Best Practices for a Noncompete Agreement
1. Review state laws.
There is no federal protection for workers against noncompete agreements. However, states vary in their governance of noncompete agreements. (Note that 48 states and Washington, D.C. have adopted the Uniform Trade Secrets Act, UTSA, at least partially. This Act codifies common law trade secret protection and offers employers some protection, even in states like California.) Organizations with remote employees should work with an HR expert (like the ones at MP) or an employment lawyer to ensure compliance in every state where they have workers. In June 2022, the National Labor Relations Board (NLRB) announced a partnership with the Federal Trade Commission to examine and act upon unfair labor practices, including one-sided non-compete agreements. In the past few years, more state governments have started passing laws to limit or completely nullify noncompetes for employers and employees. These are six examples:
- California and Washington have laws that void noncompete clauses in and out of state. Employers should not try to develop noncompete agreements for employees working in these states or for organizations headquartered in these states.
- Rhode Island prohibits employers from enforcing noncompetes with their nonexempt workers.
- Massachusetts prohibits employers from enforcing noncompetes with fired or laid-off employees. Organizations may choose to provide at least 50% of a worker’s highest salary while a noncompete agreement restricts them.
- Illinois requires a 14-day notice, which allows employees to review an agreement, especially with an attorney’s legal advice.
- Washington, D.C. has developed a highly restrictive noncompete law that employers are still fighting. It will go into effect in October of 2022.
- In some states, “low-wage workers” are entirely protected from noncompete agreements. The definition of “low-wage worker” will vary from state to state. For example:
- Maine: less than $54,000 a year
- Washington: less than $107,000 a year
- Illinois: less than $75,000 a year
- New Hampshire: less than $14.50 an hour
2. Protect trade secrets, confidential information, etc.
When organizations don’t take measures to protect their client lists, trade secrets, etc., they may be unknowingly nullifying their noncompete agreements. Courts have been known to throw out agreements when the company doesn’t do enough to protect confidential information. These are the measures employers should take:
- Conduct an exit interview with employees leaving the company, especially for new jobs. Ascertain if a former employee’s new position will be in direct competition with the organization. Repossess or delete any trade secret information that employees may have access to.
- Require employees to sign a reasonable nondisclosure agreement that complies with all relevant state laws.
- Require an employee to sign a reasonable noncompete agreement that complies with all relevant state laws.
- As a complement or alternative, consider utilizing a non-solicitation agreement. This may help to ensure former employees don’t take customers with them to new companies.
- Allow access to information on a need-to-know basis.
- Restrict access to physical (offices, file cabinets, etc.) and digital locations of proprietary information.
- Implement a document retention and destruction policy.
- Regularly inventory confidential information.
- Regularly review and improve upon practices for protecting confidential information. Don’t just “set it and forget it.”
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- Developing a Noncompete Agreement: 4 Best Practices for 2022, Part 2
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- Developing a Noncompete Agreement: 4 Best Practices for 2022, Part 1
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