The New York State Legislature recently passed a bill that will prohibit employers from entering covenants not to compete with their employees and contractors. The bill specifically exempts nondisclosure and client nonsolicitation agreements, but it is silent on employee nonsolicitation agreements and sale of business restrictions.
Effective July 1, 2023, Minnesota will no longer allow covenants not to compete, with limited exceptions for the sale or dissolution of a business. The law is not retroactive, nor does it apply to nondisclosure agreements or client/customer nonsolicitation restrictions.
The Federal Trade Commission’s newly proposed rules that would prohibit most noncompete clauses in employment represent a seismic shift for business. In this Barron’s article, McDermott Partner Michael Peregrine says corporate leadership should “take very seriously” the threat that federal antitrust policy presents to business operations and strategic development.
“This government activity has risen to a level that demands serious board and executive attention as a possible corporate enterprise risk,” Peregrine writes.
On January 5, 2023, the Federal Trade Commission (FTC) issued a proposed rule that would prohibit employers from using noncompete agreements with their employees or independent contractors. This proposal arises from a preliminary finding by the FTC that noncompetes constitute an unfair method of competition in violation of Section 5 of the Federal Trade Commission Act (FTC Act). It comes on the heels of the FTC’s November policy statement asserting its intention to rigorously enforce and expand the scope of Section 5 of the FTC Act’s ban on unfair methods of competition.
If adopted, this rule would make it illegal for an employer to enter into a noncompete agreement with a worker, maintain a noncompete with a worker or represent to a worker that the worker is subject to a noncompete. Employers would also be required to rescind existing noncompetes and inform workers that they are no longer enforceable.
Illinois has enacted a new law governing restrictive covenants: Public Act 102-0358. This law outlines the requirements for valid noncompetition and nonsolicitation agreements, and enforcement of those covenants. It will apply to all agreements entered into on or after January 1, 2022.
According to McDermott’s Brian Mead and Barrick Bollman, the legislation allows an employee to recover costs and reasonable attorney’s fees if the employee prevails in an action seeking to enforce a noncompetition or nonsolicitation agreement. The legislation also requires that employers advise employees, in writing, to consult with counsel before entering into a noncompetition or nonsolicitation agreement, and that employees be afforded 14 days to review the covenant before signing.
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