Are Non-Competes Going the Way of the Dodo?

Even as non-compete agreements become more and more common, the tide of legislative opinion may be turning against non-competes. The Michigan legislature recently introduced a bill into committee that would render many non-compete agreements void — exceptions would exist for non-competes in conjunction with the sale of a business or the goodwill of a business. This largely tracks the famous California policy with regard to non-compete agreements in prohibiting them in all but a limited set of circumstances usually related to sale and acquisition of business interests. Non-compete reform has also been on the agenda in Massachusetts for several years now. A bill that would limit the duration of a presumptively enforceable non-compete agreement (and would render agreement exceeding that limit presumptively unenforceable) was introduced in the previous state legislative session but did not pass. Former Governor Deval Patrick was in favor of non-compete reform, and it remains to be seen what kind of reform legislation Gov. Baker would support or if he would support non-compete reform at all. Even though only a couple of states currently decline to enforce non-competes or consider them void, if a state with as heavy a big-business presence as Michigan were to adopt a California-type policy toward non-compete agreements, it could motivate other states to do the same. Arguments against non-competes include the fact that most states generally enforce non-competes in order to protect the intellectual property, trade secrets, and/or goodwill of the employer, protections that could be accomplished through confidentiality and non-solicitation/no-hire agreements that do not prevent a worker from seeking employment elsewhere in the industry. As an attorney I advise it as good practice to have startups bind the co-founders and key employees to post-employment restrictive covenants such as non-disclosure, non-solicitation, no-hire, and even non-compete agreements. Of course, if there is a legislative sea change with regard to non-competes, it remains to be seen what would happen to non-competes already in effect. Having the full slate of post-employment restrictive covenants will still serve to protect a company’s IP and goodwill from misappropriation and theft. But legislatures and courts will have to decide whether existing non-competes would be grandfathered in, so that companies receive the benefits they bargained for, or whether public policy has so shifted such that even existing non-compete agreements could no longer be enforced.

Leave a Reply

Your email address will not be published. Required fields are marked *