A non-compete agreement (or non-competition agreement) is a legal contract from an employer. It prevents an employee from entering into competition concerning business interests after they no longer work for them. The agreements also prevent the employee from sharing proprietary information, sensitive information, or trade secrets with other parties.
Non-competes, also known as restrictive covenant clauses or covenants not to compete, can also stipulate a period of time that the employee cannot work for a competitor after separating from employment.
State governments continue to tighten restrictions on non-competes across the country. State laws in North Dakota and Oklahoma prohibit the enforcement of the contracts—and California doesn’t recognize them at all.
Many states also recognize their own non-compete standards. They state that the agreements shouldn’t meaningfully restrict an employee’s ability to get another job with long time periods or geographic scopes.
Regardless of where you live, it’s a good idea to seek legal advice from employment law firms before implementing this type of agreement into your business policy.
In 2022, 3 states are changing their laws around the contracts. Take a look at the laws below, and check out your state labor law guide to learn about more labor laws in your area. You can also check out upcoming employment law changes in our articles on minimum wage increases and paid leave legislation.
Non-compete agreement law changes by state 2023
The Nevada Unfair Trade Practices Act went into effect October 1, 2021. It prohibits employers from asking employees paid solely on an hourly wage to sign a non-compete agreement.
The law also says employers cannot prevent former employees from providing services to a former customer for the following reasons:
- The former employee didn’t seek out the client relationship
- The customer chose to seek services from the former employee
- The former employee is complying with the rules of the agreement in all other ways.
Oregon is expanding on its existing non-compete law beginning January 1, 2022. At the start of the new year, the state will limit the duration of non-compete agreements to 12 months after termination of employment. This time period is 6 months less than the current law that stipulates 18 months.
The change does not impact any non-compete agreements that currently exist.
Additionally, Oregon is now requiring that employees must make an annual gross salary of $100,533 to be subject to a non-compete.
The law still includes the existing regulations:
- Employers must provide written notice to new employees in the employment offer at least 2 weeks before the first day of work that a non-compete is required.
- Employers must provide a signed, written copy of the non-compete agreement within 30 days of termination.
- Employees must qualify as “exempt” and there must be a legitimate business interest that proves the contract is used to protect the employer.
The contract is considered “void” and “unenforceable” if the above requirements are not met.
Gov. J.B. Pritzker recently signed a bill amending the Illinois Freedom to Work Act. The changes prevent employers from entering into non-compete agreements with employees who earn $75,000 or less. Additionally, employers cannot require non-solicitation covenants with employees earning $45,000 or less.
A non-solicitation covenant prevents former employees from providing services to customers of their former employers.
Both non-competition and non-solicitation agreements are illegal unless:
- Adequate consideration is given to the employee
- The contract is necessary for a valid employment relationship
- The agreement does not require further than what is needed to protect the legitimate business interest of the employer.
- The agreement does not impose an undue hardship on the employee
- There is no harm to the public through the agreement.
Before entering into one of these agreements with an employee, employers must:
- Provide at least two weeks for the employee to review the contract
- Inform employees with written notice that they can speak with an attorney before signing the agreement.
If an employee wins a lawsuit against their employer over a non-compete or non-solicitation agreement, the employer must pay the employee’s attorney fees.
The D.C. Ban on Noncompete Agreements Amendment Act of 2020 was delayed and will go into effect on April 1, 2022. The law forbids employers from requiring or requesting a non-compete clause in employee contracts.
The Act also prohibits workplace policies that don’t allow an employee to have another job, operate their own business, or provide services to someone else. Additionally, employers may not retaliate against an employee because they:
- Refuse to sign a non-compete agreement
- Fail to comply with one
- Complain about a non-compete because they believe it to be illegal
Pursuant to the Act, employers must provide a written notice that says:
“No employer operating in the District of Columbia may request or require any employee working in the District of Columbia to agree to a non-compete policy or agreement, under the Ban on Noncompete Agreements Amendment Act of 2020.”
Employers must provide notice within 90 days of April 1, 2022, 7 days after hiring an employee, and 14 days after an employer receives a written request for it.
Note: The federal government recently weighed in on non-compete agreements through President Biden’s Executive Order on Promoting Competition in the American Economy. In this order, Biden asks the Federal Trade Commission to limit the use of this type of agreement. However, there is currently no federal law prohibiting them, although the Supreme Court has overturned them in the past.