June 10, 2015

non-competeEarlier this week, two U.S. Senators, Chris Murphy (D-Conn.) and Al Franken (D-Minn.), announced plans to introduce a bill that would ban companies from asking employees that make less than $15 an hour (or $31,200 annually) to agree to non-compete provisions that would hinder those employees’ efforts at securing subsequent employment.

The prospective bill would seek to address the practice of requiring low-wage, low-skilled workers to agree to overly-broad non-compete provisions. For example, evidence has surfaced that “. . . Jimmy John’s sandwich shops requires some of its low-wage workers to sign two-year non-compete agreements prohibiting them from working at retail stores that make at least 10% of their sales from sandwiches.”

While the proposed bill would help to remove any doubt about the enforceability of certain non-compete agreements, and assuage the concerns of targeted employees that might be unwilling to challenge such agreements, most courts would likely strike the “Jimmy Johns” type of non-compete provisions.

Are Non-Compete Provisions Enforceable?

Keep Your Non-Compete Provisions Sensible

As a general rule, non-compete provisions are enforceable when they apply to high-level employees with unique skill sets who have access to sensitive employer information and trade secrets. Even then, courts require the specific non-compete provisions to be limited to a reasonable duration and geographical scope. It also helps with respect to enforceability if the employee in question is compensated in some fashion during the required period of non-competition.

The reasons for this judicial approach to non-compete clauses is simple: courts are reluctant to enforce obstacles to an individual finding gainful employment.

Many of these same sentiments were echoed in a letter sent by 35 members of Congress in October 2014, to Federal Trade Commission Chairwoman Edith Ramirez and Labor Secretary Thomas Perez regarding this issue:

“Non-competition agreements may sometimes make sense for well-compensated core company leadership, who are privy to company secrets and strategies . . . .  However, applying them to a company’s entire workforce looks more like bullying under color of law, as well as a violation of labor rights.”

Non-Compete Agreements: A Scalpel, not A Hacksaw

Without narrowly tailored non-compete provisions, reserved for key employees and others that might have access to valuable trade secrets, a company may be unable to enforce non-compete protections that are necessary for its continued success.

Accordingly, it is highly recommended that you retain qualified legal counsel to ensure that any non-compete provisions that you intend to use, or currently use, are drafted and/or revised, as applicable, in order to ensure that they will be enforceable in a court of law.

If you are interested in learning more about this topic or require the preparation, revision and/or negotiation, of non-compete provisions, please e-mail us at info@kleinmoynihan.com, or call us at (212) 246-0900.

The material contained herein is provided for informational purposes only and is not legal advice, nor is it a substitute for obtaining legal advice from an attorney.  Each situation is unique, and you should not act or rely on any information contained herein without seeking the advice of an experienced attorney.

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