As momentum for regulation of non-competes grows at the federal level, states continue to pass restrictive non-compete legislation on their own.
As previously reported, on January 5, 2023 the Federal Trade Commission (“FTC”) proposed a new rule which would effectively ban all non-compete agreements between employers and other workers—not only prohibiting new non-competes, but invalidating existing ones. After receiving almost 27,000 comments during an extended comment period, the FTC voted to delay a vote on the proposed rule until April 2024. Given the vehement opposition to the proposed rule by certain industry groups, even should the FTC move forward with a rule, most expect immediate legal challenges and therefore further delays.
Non-compete reform has continued apace in the Northeast as President Biden has expressed interest in a federal law impacting the use of non-competes. As a candidate, President Biden promised to “eliminate non-compete agreements, except the very few that are absolutely necessary to protect a narrowly defined category of trade secrets….” We have not heard from the administration as to whether there will be any attempted movement in that direction. However, as we have reported here, and here, and here, states in the Northeast have increasingly moved to restrict non-compete agreements. Now, the District of Columbia has enacted sweeping non-compete legislation surpassing any recent statutes in the Northeast, akin to the broad bans in California, North Dakota, and Oklahoma.
Last month, the Court of Appeals for the First Circuit found that a Delaware choice of law provision in a non-competition and non-solicitation agreement with a former Massachusetts employee was sufficient to invoke Delaware law. Notably, the non-compete agreement at issue was entered into prior to the October 1, 2018 effective date of the Massachusetts Noncompetition Agreement Act (the “Noncompetition Act”).
As we previously reported in the context of low-wage workers, Rhode Island recently passed the Rhode Island Noncompetition Agreement Act, which will be effective January 2020. This legislation extends protections far beyond low-wage workers, however. The Act contains many provisions similar to (and clearly based on) Massachusetts’ recently passed non-competition legislation, but also several major differences.
Nutter Partner David Rubin recently contributed an article to Massachusetts Lawyers Weekly that analyzed the Massachusetts Noncompetition Agreement Act. In the article, “Thorny Questions, Issues Emerging as Noncompete Act Takes Hold,” David addressed questions that have arisen since the legislation was enacted, including mutually agreed-upon consideration, employment relationships, non-exempt employees, termination cause, forfeiture for competition agreements, and separation agreements.
Last month, the Supreme Judicial Court dismissed a suit brought by a Massachusetts employer to enforce a non-compete on its California-based employee on the ground of forum non conveniens. The SJC held that the non-compete’s Massachusetts choice of law provision was unenforceable and that California substantive law should apply. Recall that even with the recent change in Massachusetts non-compete law, such restrictive covenants are still permissible, while in California, employee non-competes are subject to an outright ban.
This week, the Massachusetts Noncompetition Agreement Act became effective. For employers, this means that all non-compete agreements entered into on or after October 1, 2018 must comply with the new law’s requirements. It is likely that most Massachusetts employers will have to revise their existing agreements.
In the early morning hours of August 1, 2018, the Massachusetts House and Senate passed long-awaited non-compete legislation. Assuming that Governor Baker signs the bill into law, the legislation will become prospectively effective October 1, 2018. The Massachusetts Noncompetition Agreement Act (the “Noncompetition Act”) is many years in the making, as Massachusetts legislators have made numerous, but unsuccessful, attempts to enact a law addressing non-competes over the past several years.
In the early hours of this morning, the House and Senate advanced the non-compete legislation without any amendments. The legislation now moves to Governor Baker for approval. If enacted, the law would apply to all non-competes signed after October 1, 2018. In the coming days, we will report on what employers will now need to consider if Governor Baker signs the legislation.
On Wednesday, the Massachusetts Senate passed an Economic Development bill that revives the long-debated issue of non-compete legislation in the Commonwealth.
In the rapidly changing business world, protecting a company's human capital and proprietary information is critical to maintaining a competitive edge. On this blog, Nutter's experienced Business Litigation and Labor, Employment & Benefits attorneys offer news and insights on all aspects of restrictive covenants and trade secrets—from analyzing a rapidly evolving body of case law, to summarizing new legislation and legislative efforts, to providing other need-to-know updates and more.