Bans on Employee Restrictive Covenants are Gaining Momentum – Take Steps Now to Protect Proprietary Information

05 April 2021 Labor & Employment Law Perspectives Blog
Authors: Rachel Powitzky Steely

A number of states and municipalities have passed laws restricting or banning noncompetes in recent years.  For instance, employee noncompetes are prohibited in California and, in Washington, D.C., were banned as of March 15, 2021.  Other states currently have legislation pending that would restrict or prohibit forms of noncompetes as well.

In addition, the federal government will likely push for prohibitions against noncompetes in the next year. After President Biden’s election, he released his  “Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions” (the “Plan”), which seeks to “eliminate noncompete clauses and no-poaching agreements that hinder the ability of employees to seek higher wages, better benefits, and working conditions by changing employers.” 

Looking ahead, the ability to restrict former employees from competing or soliciting employees will likely be limited in some manner in many (if not most) states, so companies must plan now before the limitations take effect.  Here are three things an employer can do now to protect the company against rogue employees.

  1. Employees should sign narrowly tailored noncompetition and nonsolicitation covenants NOW.  While restrictions vary by state, new laws voiding noncompetes typically do not apply retroactively to agreements already in effect.

  2. Have employees sign confidentiality covenants with provisions for an award of attorneys’ fees. Even states that do not recognize noncompetition covenants will enforce confidentiality contracts made to protect a company’s proprietary information. 

  3. Institute and enforce procedures to ensure employees do not leave with company proprietary information.  Processes that ensure employees have not downloaded proprietary information will help to immediately stop employees from poaching customers.

Given the trend to curb noncompetition covenants, steps taken now can help companies protect customer relationships even in the absence of enforceable noncompetition provisions.

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services