ILMA Compoundings May 2017 - 40

COUNSEL COMPOUND

Taking Another Look at
Noncompete Agreements
By Jeff Leiter

get recurring questions about
employee noncompete agreements.
Many ILMA members have seen
recent reports about government actions to attack overreaching noncompetes. Although I have written on this
topic in previous columns, an update
is in order.
Noncompete agreements had become relatively commonplace across
the U.S. However, the tipping point
came in 2014, when New York's
attorney general went after sandwich
chain Jimmy John's for requiring new
hourly-wage hires to sign noncompete agreements prohibiting them
from working for another sandwich
shop within two miles for two years
after their employment. Jimmy John's
asserted that its sandwich-making
techniques were unique.
Let's turn to some of the "attacks."
The Obama administration sought to
ban noncompete agreements for lowerpaid workers and require employers
to provide the form of their noncompete agreements at the job offer stage.
According to the then-president's
team, 20 percent of U.S. workers are
subject to some form of noncompete
agreement, including 14 percent of
those employees earning less than
$40,000 per year. The Obama White
House also wanted judges to limit the
enforcement of overly broad noncompetes that discourage job choices.
The National Labor Relations Board
(NLRB) has been in the mix, too, issuing
several decisions in the last two years
critical of noncompete agreements.

MAY 2017

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These decisions concluded that
noncompetes have adverse effects on
employee bargaining power and wages.
In addition to New York, other state
attorneys general have been actively
attacking noncompete agreements,
challenging these agreements for rankand-file employees who are unlikely to
possess confidential information but
who are required to sign them.
Several states have enacted laws
curbing noncompete agreements and
their enforcement. For example, Illinois
says that any employee making less
than $13 per hour cannot be subject
to a noncompete. An Oregon statute
restricts the duration of noncompete
agreements to two years. California,
Colorado, Montana and North Dakota
prohibit the enforcement of employee
noncompete agreements.
Other than in these four states,
the "bottom line" is that appropriately drafted and used noncompete
agreements generally will be enforced.
What do I mean by "appropriately?" Simply, it is safe to assume that
noncompetes, even in the states that
enforce them, will be more closely
scrutinized, and reasonably crafted
agreements will survive such scrutiny.
So, my current advice for employers
is to discuss with their local counsel
whether it makes sense to tailor more
narrowly their form noncompete
agreements. Here are some thoughts:
* Most courts uphold noncompete
provisions tied to geographic
boundaries and time limits.

Determine whether it makes
sense to link these limits specifically to the employee and his
or her performance of duties for
the company. For example, limit
the geographic restriction only
to where the employee provided
services and/or restrict the time to
the amount it will take to establish
a replacement employee with the
applicable customer relationships.
* Some companies restrict a departing employee from working for
a competitor's defined business
segment or product line, rather
than trying to enforce a broader
prohibition against working for
that competitor in any capacity.
* Some jurisdictions will enforce
a prohibition against doing
business with certain customers
in lieu of a geographic limit.
However, some courts look to
balance whether the company's
entire customer base needs to be
designated off-limits or whether
to bar the former employee from
contact with only those customers
with whom he or she had material
interaction or received confidential information.
* In noncompetes I draft, I try to
define "restricted" and "prospective" customers. For example, I will
say restricted customers are those
customers within the employee's
last year of employment, while a
prospective customer is one with a
pending proposal or bid.

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ILMA Compoundings May 2017

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