Thursday, March 26, 2015

Are We Seeing a Backlash to the Non-Compete Agreement?

Many people were shocked last fall when a lawsuit against Jimmy John’s revealed that the sandwich chain required its employees to sign non-compete agreements. The non-compete agreements, which are contracts in which an employee agrees not to work for a competing business for a period of time, were not limited to high level executives. Instead, the agreements prohibited sandwich makers, delivery drivers, and other low-level employees from working for competitors. 

Jimmy Johns is not the only company requiring employees to sign non-compete agreements. Non-competes have proliferated in recent years, worrying labor organizations and employee rights groups throughout the country. As a result, a number of states have introduced measures banning or restricting the use of non-compete agreements. 

For example, last year Massachusetts’s governor, Deval Patrick, pushed for legislation that would ban most non-compete agreements in Massachusetts. While the measure failed, another bill has recently been introduced that would ban non-compete agreements in almost all industries. These agreements already are banned for physicians. 

Hawaii has also introduced a bill which would prohibit non-compete agreements in the technology sector. The bill is aimed at attracting and keeping tech workers in Hawaii, many of whom are leaving because non-compete agreements make it difficult for them to find work in the state, according to officials in Hawaii’s Department of Education. 

A bill prohibiting non-compete agreements for physicians was recently passed by the New Mexico state Senate. The bill’s sponsor introduced it because he claimed that New Mexico lacked enough qualified doctors, especially in rural areas, a shortage due in part to non-compete agreements. 

However, the backlash against non-compete agreements has not extended to Wisconsin. In that state, a bill was recently introduced that would expand the enforceability of non-compete agreements. The bill would also permit courts to rewrite non-compete agreements, which may encourage employers to write agreements that are overly broad with the expectation that a court will narrow its scope. 

Based on the increasing use of non-compete agreements, it seems likely that other states will introduce legislation restricting their use. However, these bills may not be necessary. It is already difficult to enforce non-compete agreements, as a court will invalidate agreements that impose overly broad geographic and time restrictions. In most states, courts do not favor non-compete agreements, and will only enforce those that are narrowly written and that do not unduly burden an employee.