Employers have long used restrictive covenant agreements to protect sensitive information about their business and their clients, as well as their investment in training their employees and in developing and maintaining client and vendor relationships. Recent development of more comprehensive data on the number of workers working under restrictive covenants, as well as research into the impact of restrictive covenants on economic growth, have led a number of state legislatures and government agencies to turn their eyes toward restrictive covenant enforcement and potential reform. In 2015 and 2016, a number of state legislatures introduced or passed legislation specifically aimed at narrowing the scope of interests that will legally support judicial enforcement of restrictive covenants and/or limiting the enforceability of non-compete agreements—a specific subset of restrictive covenants that prevent an employee from working for or as a competitor of their previous employer.
In this month’s column, we survey the recent non-compete legislation and examine several specific government investigations into non-compete practices. We further outline a number of suggestions for employers to consider when reviewing their use of non-compete agreements.
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