Laws regulating restrictive covenants like non-competition and non-solicitation agreements are changing quickly and it can be difficult to stay current. Because laws vary by state, employee location makes a difference in how to draft these agreements. Generally, employers need to comply with the employment laws of the state where the employee works. Changes in the remote work landscape can make drafting enforceable restrictive covenants more complicated than ever before. Let’s take a look at some notable changes in restrictive covenants in various jurisdictions across the country.
Definitions
Non-Compete Agreement (NCA): A contract where an employee agrees to not compete with a company for a certain period of time after employment.
Non-Solicitation Agreement (NSA): A contract where an employee agrees not to solicit the company’s clients, employees, or other individuals with whom the employee worked.
Examples of State Limitations on Non-Compete Agreements in 2024
- California: Not only does California ban non-compete agreements outright, recent legislation voids non-competes executed in other states and requires employers to send notice to their California employees, by February 14, 2024, that any non-competes they may be subject to are void.
- Colorado: Employee non-compete agreements are permitted only if the employee makes at least $123,750 annually and only if the non-compete protects company trade secrets. Employers must also meet strict notice requirements. Lower wage thresholds apply to customer non-solicitation agreements.
- Illinois: Employee non-compete agreements are permitted only if the employee makes more than $75,000 annually. Employers must also meet strict notice requirements. Lower wage thresholds apply to non-solicitation agreements.
- Maine: Non-compete agreements cannot be enforced against an employee who makes less than 400% of the federal poverty level. Employers must also meet strict notice requirements.
- Maryland: Non-compete agreements cannot be enforced against an employee who makes less than $22.50/hour.
- Massachusetts: Non-compete agreements are not permitted for non-exempt employees under the Fair Labor Standards Act. Employers must also meet strict notice requirements.
- Nevada: Non-compete agreements are not enforceable against hourly employees.
- New Hampshire: Non-compete agreements cannot be enforced against an employee who earns an hourly rate less than or equal to 200% of the federal poverty level. Employers must also meet strict notice requirements.
- Oregon: Non-compete agreements are enforceable only for employees whose annual compensation exceeds $113,241.. Employers must also meet strict notice requirements.
- Rhode Island: Employees must earn more than 250% of the federal poverty level and be exempt under the Fair Labor Standards Act for a non-compete agreement to be enforceable.
- Virginia: Non-competes are not enforceable against low-wage employees. “Low-wage employee” means an employee whose average weekly earnings are less than the average weekly wage of the Commonwealth, as determined by the Virginia Employment Commission–about $1,410 per week in 2024.
- Washington: Non-compete agreements are only enforceable against employees whose annual earnings exceed $120,559.99. Employers must also meet strict notice requirements.
- Washington, D.C.: Non-compete agreements are void unless an employee earns at least $154,200/year (or $257,000 for medical specialists). Employers must also comply with strict notice requirements.
For more information about state restrictions, check out SixFifty’s non-compete US map.
Jurisdictions Banning Non-Compete Agreements
- California: Neither non-compete nor non-solicitation agreements are enforceable against employees.
- Oklahoma: Oklahoma has a complete ban against employee non-compete agreements. Non-solicitation agreements are permitted to the extent the prohibition is from soliciting the company’s customers and employees.
- North Dakota: Neither non-compete nor non-solicitation agreements are enforceable against employees.
- Minnesota: Minnesota passed a complete ban on non-competes which took effect July 1, 2023. That law does not apply retroactively, so only agreements signed on or after the effective date are subject to the restriction.
Federal Action
At the federal level, we continue to monitor the Federal Trade Commission’s (FTC’s) proposed non-compete ban, which would ban employee non-competes nationwide. Bloomberg News recently reported that the FTC will not vote on the final version of the rule until April 2024, after the agency received almost 27,000 comments on the draft rule. While the rulemaking process continues, the FTC continues to bring enforcement actions against companies’ unfair use of non-competes. Businesses should be aware that overzealous use of non-competes comes with a real risk, even absent a federal rule banning them.
The National Labor Relations Board (NLRB), a different federal agency, has also taken action against non-compete agreements. On May 30, 2023, NLRB General Counsel Jennifer Abruzzo issued a memo saying that employers’ use of non-competes violates the National Labor Relations Act (NLRA). She argued that non-compete provisions violate the NLRA because they “could reasonably be construed by employees to deny them the ability to quit or change jobs by cutting off their access to other employment opportunities that they are qualified for based on their experience, aptitudes, and preferences as to type and location of work.”
The NLRB has also brought complaints against employers using non-competes, though the outcomes are still undetermined. It’s clear the NLRB is increasing its scrutiny of non-compete agreements, especially those with low- or middle-wage workers. Importantly, Ms. Abruzzo’s opinion will not affect non-competes with supervisory or managerial employees because they aren’t protected under the NLRA.
Best Practices
In current practice, some businesses may use standard-form non-compete and non-solicitation agreements as a matter of course or as a tactic to discourage employee migration and prohibit them from competing. Updates to existing restrictions and implementation of outright bans are making that practice dubious. Businesses who misuse non-compete or non-solicit agreements may incur hefty fines and even jail time in the most strict states. Now is a great time to reexamine your non-compete and non-solicitation agreements to ensure compliance and best practices.
SixFifty Solutions
SixFifty can help you to automate the employment agreements you need to hire employees in every state. Our Employment Agreements toolset helps companies create offer letters, employee contracts, separation agreements, non-compete agreements, non-disclosure agreements, and more.
Working with SixFifty is like having a panel of top-tier employment lawyers by your side to update your policies and documents as the law changes.
If you are ready to get started or have any questions, schedule a demo with SixFifty today!
