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

05 April 2021 Labor & Employment Law Perspectives Blog
Author(s): 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.

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