As the year progresses, legal questions and cases regarding noncompete law should prove interesting. In recent years, the trend has been toward limiting noncompete agreements in favor of allowing employee mobility. This year promises challenges on both sides of the issue. Here are a few that we’re watching, as reported by Law360.
The U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) vowed in 2016 to bring criminal antitrust charges against businesses that make deals not to hire each other’s employees: “no-poach” agreements. State attorney generals have followed suit, investigating the practice in fast-food chains. Private plaintiffs’ attorneys recently got on board, filing class action suits—three of which involve pizza maker Papa John’s—that no-poach agreements violate the Sherman Antitrust Act, a longstanding law that protects free competition.
In the Papa John’s antitrust suit, an employee alleged that the company had franchisees sign a no-hire agreement that blocked them from employing other employees from Papa John’s International, its affiliates, or its franchisees. The suit claims that this agreement goes beyond what the DOJ and FTC deemed criminal by not only blocking franchises from soliciting each other’s employees but blocking workers that apply on their own. Similar suits are underway with companies that include Cinnabon, Burger King, and non-franchise companies like railway suppliers Knorr-Bremse and Wabtec.
We are watching developments in these cases because they differ from the regular no-poach disputes between competitors and widen the target of traditional noncompete litigation.
Massachusetts’ Novel Noncompete Law
In 2018, the Massachusetts legislature passed a unique law that significantly limits the use and enforcement of noncompete provisions. Effective October 1, 2018, the state’s employers are prohibited from imposing noncompete agreements on non-exempt employees and from enforcing such provisions against exempt employees that are laid off or terminated without cause.
In addition, any noncompete agreements must be presented to an employee at the time of an employment offer or at least 10 days before the starting date—and cannot extend beyond 12 months. Employers also must provide “support” to former workers during noncompetition periods with at least half of the highest annual salary they earned in the prior two years or another “mutually agreed upon consideration.”
We expect to see challenges in court as employers determine how to enforce the law.
Enforcement of Lengthy Noncompete Agreements in Illinois
In Illinois, a noncompete case addressed the length of the contract’s noncomplete period. A dance studio sued a former instruction for violating an agreement not to open her own dance studio within 25 miles of the employer for five years after leaving and prohibiting solicitation of former students for three years. The instructor asked that the case be dismissed because the noncompete period was too long and therefore invalid. Additionally, she asked that the court label agreements that forbid competition for three or five years illegal. The appeals court declined the case, referring to a directive that judges consider noncompete agreements on a case-by-case basis, and remanded it to the circuit court.
Determination of a reasonable length of time restricting competition after an employee leaves a company could affect all noncompete agreements. We expect further activity this year and will keep you informed of developments.
In light of the ongoing efforts to restrict or prohibit noncompete and anti-poaching agreements, employers should stay aware of how to formulate such agreements. If you need assistance in analyzing your employee agreements, we are happy to help.