These covenants — often in the shape of non-compete clauses or non-solicitation (of employees or customers) clauses — have become popular because companies are looking to protect their financial interests.
But these clauses are coming under attack more and more as their use becomes more widespread.
Jay Wolman, on The Legal Satyricon, noted that non-disparagement clauses in separation agreements may be one area where courts are reluctant to enforce. As a result, employers may want to use severability clauses to have the agreements upheld even if one provision is overbroad:
These clauses are very common, but likely are not long for this world. In the interim, employer counsel may want to rethink the standard severability clause. Although employers are certainly keen on obtaining as much a release as possible, it may be time to reconsider whether the agreement should survive if the former employee can simply ignore these clauses.
The ABA Journal of Labor & Employment Law also recently published an article on “Developing Trends in Non-Compete Agreements and Other Restrictive Covenants.” As the authors note, courts still tend to enforce the covenant “if it protects a legitimate business interest, the employee received consideration for the covenant, it is narrowly tailored, and the time and territorial limitations are no greater than necessary to protect the employer’s business interests.”
Despite this, the authors are quick to highlight the fact that each state interprets such things differently.
The New York Times even last year noted the trend of employers using these clauses more. And not in a good way.
With this publicity in mind, Connecticut is again taking the lead — at least from a federal perspective.
Slate reported last week that Senator Chris Murphy introduced legislation that would ban non-compete agreements altogether for workers who make less than $15 per hour.
It would also require companies to let potential hires know ahead of time that they will be required to sign a non-compete agreement.
The bill, called the Mobility and Opportunity for Vulnerable Employees Act (MOVE) is also co-sponsored by Connecticut’s other senator, Richard Blumenthal.
At a press conference, Senator Murphy said that the bill was necessary in a free labor market. “If workers can’t go to a competitor for a promised higher wage, then the market fluidity — the labor fluidity that creates upward pressure on wages — disappears,” Murphy said. “If workers are locked into jobs because of non-compete clauses, then there is no reason for companies to raise their wages.”
Without bi-partisan support, the odds of this bill passing are somewhere between never and no. But don’t be surprised if we see this pop up again at a state level in the next legislative session.