Non-Solicitation Agreements

We recently shared a California federal court decision in Barker v. Insight Global, LLC, et al. that relied on Section 16600 of California’s Business and Professional Code to hold that, in California, non-solicitation provisions in employee agreements are presumptively invalid. The California statute governing restrictive covenants provides that “[e]xcept as provided in this chapter, every contract by which anyone is restrained from engaging in a lawful profession, trade, or business of any kind is to that extent void,” Cal. Bus. & Prof. Code §16600. But it does not expressly provide conditions under which a restrictive covenant would be enforceable against an employee. This has left the statute vulnerable to the kind of judicial interpretation seen in Barker, in which the “reasonableness” standard, applied to non-solicitation provisions for decades, was rejected in lieu of an invalidity presumption.

The good news for employers, however, is that many states outside California within the Ninth Circuit have express statutory provisions permitting restrictive covenants under certain conditions as outlined in the survey below:

State
State governing restrictive covenants
Statute explicitly allows restrictive covenants in employment agreements under the following conditions:
Hawaii Haw. Rev. Stat. §480-4
  • Does not have the effect of substantially lessening competition or tend to create a monopoly in any line of commerce in any section of the State.
  • Consists of an agreement not to use the employer/principal’s trade secrets for a reasonable time.
Idaho Idaho Code §§44-2701 to 2704
  • Limited to “key” employees or independent contractors.
  • Protects the employer’s legitimate business interest.
  • Reasonable in duration, geographical area, and based on the type of employment/line of business.
  • Does not impose a greater restraint than reasonably necessary.
Nevada Nev. Rev. Stat. §§613.195-613.200
  • Supported by valuable consideration.
  • The restraint is not greater than required for employer’s protection.
  • Does not impose undue hardship on the employee.
  • If the result of a termination, employer must pay the employee’s full compensation for the entire restricted period.
Oregon Or. Rev. Stat. §653.295
  • Duration is 18 months or less.
  • Employer provides compensation for the entire restricted period equal to the greater of either (1) 50% of employee’s gross base salary and commissions or (2) 50% of the U.S. Census Bureau median income for a family of four.
  • Includes a notice requirement.
Washington Wash. Rev. Code Ann. § 49.44.190
  • Permitted unless employee is terminated without just cause or laid off.
  • Applies to broadcasting industry only.

Where state statutes are silent on restrictive covenants or do not provide express carve-outs for enforcement, employers and employees have less certainty and remain more vulnerable to shifting judicial interpretations of these provisions.

Please join us for a Crowell & Moring webinar, “New Year, New Look at the Enforceability of Employee No-Solicitation Agreements – State Law Developments,” scheduled to take place on February 28th, 2019 at 12:00 pm Eastern.

Employers frequently enter into restrictive covenants with their employees, including those that prohibit former employees from recruiting other employees away from their current employment. These agreements are intended to protect the employer’s intellectual property, trade secrets and other business interests. They have generally been viewed by employers and courts as routinely enforceable. However, recent state law developments, including recent decisions in California and Wisconsin, suggest that these restrictions may face additional scrutiny from increasingly skeptical courts. These decisions may require further review of current restrictive covenants.

During this webinar, we will discuss the recent developments regarding employee solicitation restrictions in California, Wisconsin, and other states. We will then address best practices with respect to such agreements.

Crowell & Moring panelists include Partner Tom Gies, Senior Counsel Andrew Bagley, Counsel Christine Hawes, and Counsel Suzanne Rode.

We hope that you can join us and participate in a lively discussion of these issues.

Please click here to register.