Noncompete provisions increasingly disfavored across the country

Many employers require employees to sign a noncompete “agreement” before the employee will be hired or, in the context of merger or acquisition, can keep their job. These noncompete provisions prevent employees from working for competitors for a year or more after they leave the employer with which they have the employment agreement that includes a noncompete term. Employers rationalize the use of these provisions as necessary to protect company trade secrets and other sensitive business information. Such restrictions can make it difficult, however, for employees to earn a living elsewhere and to support their families if they ever stop working for their current employer. Nonetheless, nearly 20% of employees nationwide labor under the burden of a noncompete “agreement” today.

Fortunately, State legislatures – whether led by Democrats or Republicans – are taking action to address the substantial imbalance in economic opportunity and the fundamental unfairness that noncompete provisions have created in many cases. North Dakota and Oklahoma, along with California, have codified an almost total ban of noncompete provisions. Iowa and West Virginia are close to joining States like Oregon and Washington, which ban noncompete provisions regarding employees who earn less than a specified amount per hour or per year. In addition, as Minnesota illustrates, States also limit employer use of noncompete provisions through court decisions in employment law cases addressing company contract claims. Those court decisions have struck down or significantly narrowed the scope of noncompete provisions. Not surprisingly, employees generally earn more when employers use noncompete provisions less.