Are non-competes still enforceable in middle of the unprecedented economic disruption caused by COVID-19? Many employers have reacted to the business impact of COVID-19 by downsizing and laying off employees, some of whom signed non-compete agreements or restrictive covenants to protect the employer’s legitimate business interests, including its trade secrets and confidential information. Those same businesses now are left wondering whether those non-compete agreements are enforceable in the wake of massive unemployment triggered by the pandemic.

The answer to this question is complex, and depends on state law, public policy, and the terms of the specific agreements. Each state scrutinizes non-competes and restrictive covenants differently and, therefore, the answer may be different depending on where the business and employee are located or the agreement’s choice of law provision. In Massachusetts, non-compete agreements and restrictive covenants are not enforceable against employees that were laid-off or terminated without cause. Most layoffs resulting from COVID-19 related business decisions will likely be considered termination without cause. Some states limit the enforceability of non-competes against low-wage employees. In Rhode Island, for instance, an employer may not require an employee who is paid less than 250% of the federal poverty level (meaning less than $600 per week) to enter into a non-compete agreement. In California, non-compete and customer non-solicitation agreements in employment contracts are per se invalid. See Cal. Bus. & Prof. Code § 16600.

In other states, non-compete agreements are governed by common law. In New York, some courts have held that non-competition agreements may be unenforceable when an employee is terminated without cause. See Arakelian v. Omnicare, Inc., 735 F. Supp. 2d 22, 41 (S.D.N.Y. 2010) (stating “New York courts will not enforce a non-competition provision in an employment agreement where the former employee was involuntarily terminated.”). In Pennsylvania, courts consider all the facts and circumstances on a case-by-case basis and one of the facts considered are the circumstances surrounding the termination; we expect that Pennsylvania courts might view COVID-19 related terminations in a somewhat negative light when considering restrictive covenants. See, e.g., Insulation Corp. of America v. Brobston, 667 A.2d 729 (Pa. Super. Ct. 1995).  Even in states that otherwise are generally friendly to enforcing reasonable restrictive covenants, courts may think twice about doing so in these circumstances, especially when they take into account public policy, the reasons for the termination, and the extreme circumstances surrounding COVID-19.  For example, given the rate at which unemployment has grown, courts might view a non-compete agreement as not only keeping an individual from single job at another company but as keeping that individual out of employment entirely in a bad job market.

Companies contemplating layoffs of employees who have signed restrictive covenants should carefully consider whether the departing employee poses an actual risk of trade secret misappropriation and assess applicable law in determining whether to take action to enforce the agreement.

For more information about specific jurisdictions, please refer to our previous detailed discussions of non-compete agreements and restrictive covenants by judicial Circuit:

  • 1st Circuit (includes Maine, Massachusetts, New Hampshire, Puerto Rico, and Rhode Island)
  • 2nd Circuit (includes Connecticut, New York, and Vermont)
  • 3rd Circuit (includes Delaware, New Jersey, Pennsylvania, and Virgin Islands)
  • 4th Circuit (includes Maryland, North Carolina, South Carolina, Virginia, and West Virginia)
  • 5th Circuit (includes Louisiana, Mississippi, and Texas)
  • 6th Circuit (includes Kentucky, Michigan, Ohio, and Tennessee)
  • 7th Circuit (includes Illinois, Indiana, and Wisconsin)
  • 9th Circuit (includes Alaska, Arizona, California, Guam, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington)
  • 11th Circuit (includes Alabama, Florida, and Georgia)