Common Clause

Are Non-Competition clauses enforceable?

May 9, 2023

Non-Competition clauses are closely related to Non-Solicitation clauses, which we covered in last week’s post. Non-compete enforceability also differs across states, but there is generally more legislation governing non-competes than non-solicits and a growing movement to ban non-competes entirely. Let’s take a look at what a non-competition clause is, their different treatment across the US, and the parameters you should look out for when they are enforceable.

What is a Non-Competition clause?

The Federal Trade Commission (FTC) defines Non-Competition as a restriction that “blocks the worker from working for a competing employer, or starting a competing business, typically within a certain geographic area and period of time after the worker’s employment ends.”

In other words, your previous company doesn’t want to spend time investing in your success, only to have that investment become their competition upon your departure. However, the argument against non-competes is that it stifles healthy competition and limits the upwards economic mobility of individual workers.

Differing Views across the US

On February 2023, the Senate introduced the Workforce Mobility Act to ban noncompete agreements, with exceptions only in the case of sale or dissolution of business. While it remains to be seen if and when this bill gets passed, the bill squarely puts non-competes on the national stage.

For individual states, the trend is to increasingly limit the use of non-competes. Take a look at the spectrum of restrictions across states below:

For cases where there is no specific legislation governing non-competes, there’s a spectrum of how courts have treated their enforceability. Alaska courts, for example, have generally ruled against their enforceability, whereas Kansas courts have generally upheld them.

What to look out for in Non-Competition clauses

For states that do enforce non-competes, enforceability still depends on the scope, duration, and geographic region of the clause. For example, Florida law explicitly allows them, but they must satisfy the two conditions of protection of legitimate business interest and reasonable nature and scope (Florida Statutes § 542.335). Take duration as an example, 6 months or shorter is typically considered acceptable, whereas longer than 2 years is not. Just like non-solicits, the most favorable version is to not have a non-compete at all, so recipients should prioritize negotiating away any aspects that significantly limit your employability after departure.

As we learned from non-solicits, many employers include non-competes even when they are not enforceable. In fact, the California Attorney General had to issue a reminder of their unenforceability last year. Given your state, profession, and income, it’s likely that there are specific legal protections in place that you’re covered by. We hope this post helped provide the basics of understanding!

For advocacy and beyond!
The Ask Ginkgo Team

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