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Published on Tuesday, December 5, 2017

More Developments on Non-compete and Other Employer Agreements

In our article in last week’s EPTW This Week!, “Non-solicitation and Confidentiality Agreements Tested by Social Media,” the aspect of too restrictive non-compete agreements in the face of employee social media use was reviewed. Judicial and legislative activity in the areas of employee non-competition, non-solicitation, non-poaching, and confidentiality agreements has increased significantly in the last few years.

Court’s this year looked at when a non-compete injunction term should start? When the employee leaves the competitor’s company or when the former employer-company wins an injunction? The Superior Court of Pennsylvania affirmed a lower court’s holding that the clock started on the non-compete when the previous-employer’s injunction was put in place, not when the employee ended up leaving the employer that hired them despite the non-competition clause. The court stated that the reason for this was “backdating a non-compete injunction would wrongfully benefit a worker who had refused to comply with his contractual terms,” Seyfarth Shaw Robert Milligan cited.

Many states, including Michigan (considering), have either passed or are considering new legislation designed to change the use of non-compete agreements. Since 2016 Alabama, Connecticut, Idaho, Oregon, and Utah have all passed legislation designed to control non-compete agreements. Massachusetts, Michigan, and other states continue to discuss the implications of restricting non-competes and other employer agreement terms that restrict former employees from working for a competitor. Michigan’s bill (HB4755), in addition to requiring employers to follow a specific procedure when implementing non-complete agreements, also takes aim at the use of these agreements at all for low-paying jobs. This bill is unlikely to pass in Michigan’s currently Republican majority lead legislature. The Republican’s generally believe restricting the use of non-compete agreements will ultimately be a job killer for Michigan.

Unlike non-solicitation agreements between employer and former employee, non-poaching agreements between companies seek to restrict an employee’s ability to work for other companies in their industry and other franchise shops that are under one employer. The agreement will state that the franhisors or industry competitors will not hire one another’s workers. This type of agreement is looked on differently by Courts and the government in that non-poaching agreements in the same industry can be found to breach anti-trust law. Non-poaching agreements restrict trade by restricting workers right to compete in a free labor market. Last year the U.S. Department of Justice issued guidance telling employers they will be investigated if it is found they have such agreements in place.

 

Sources: Jeshua Lauka’s Business and Real Estate Blog 2/22/2016. Employment Law 360; Noncompete Roundup: Developments You Might Have Missed Braden Campell, 12/1/2017

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