Many employers still subscribe to the mistaken belief that courts will generally enforce their ‘one size fits all’ non-compete agreements throughout the US, as long as they appear to be designed to protect the company’s legitimate business interests. This has always been a dubious assumption because non-competes in the US are governed by state law, which, for years, has meant real variations in enforceability from state to state. But with a new wave of activity in state legislatures throughout the country, the situation is getting worse and more complicated as states enact new and, in some cases, fairly unique requirements for the use of non-compete agreements. Companies that continue to use a one-size-fits-all national form are exposing themselves to an increasing level of legal and financial risk by ignoring the reality of increasingly differing legal regimes.

Companies should take a thoughtful and strategic approach to analysing what restrictions apply to different levels of workers and ensure compliance with the constantly changing legal landscape across the country. With recent state level legislative activity, now would be a good time for employers to take a fresh look at how they are using non-competes to ask themselves some baseline questions when reviewing their relevant agreements: what is the underlying justification for the contractual restrictions imposed on our employees? In other words, what risks are we really protecting the company from? Which employees pose what risks? For various types of employees, is there any form of lesser restriction that would be sufficient to protect against the identified risks?

The two main types of restrictive covenant clauses in employment agreements are non-solicitation provisions (the employee is prevented from soliciting customers or employees of the former employer for a period of time, but can compete, generally), and non-competition clauses (the employee is prohibited from competing against the former employer, usually for a defined period and within a defined geographical area). The other tool at a company’s disposal is a well-drafted confidentiality clause which will let the employee know what work-related information he or she can (and cannot) use or disclose. This will vary from business to business.

Once companies have contemplated and answered the aforementioned baseline questions and determined what restrictions would protect its identified risks, it is best if the employer tailors its restrictive covenants for the company’s geographic footprint, which will result in having different, and sometimes multiple, versions to encompass the various legal structures in all 50 US states. Tailoring covenants for the company’s geographic footprint – whether that spans a few states or nationwide – is by far the most effective strategy for a programme of covenant enforcement.

Jan-Mar 2019 Issue

Fisher & Phillips LLP