The new noncompete bill discussed in my last post is now available here. As expected, it is substantially shorter and simpler than the previous proposal. Among other things, it dispenses with a pre-hire notice requirement, garden leave, and attorneys’ fees shifting for unreasonable restrictions. Here are the salient features of the new bill:
- A noncompete of up to six months is presumptively reasonable in duration. A restriction longer than six months is presumptively unreasonable and unenforceable.
- However, a noncompete longer than six months may be enforced by a court if (1) the employee has breached his or her fiduciary duty, (2) the employee has taken company property, and/or (3) the employee’s annualized compensation is at least $250,000.
- When one or more of these exceptions are present, a court may enforce the agreement for any duration determined by the court to be appropriate.
That’s about it. The remainder of the text clarifies that the bill applies only to employee noncompetes and does not address non-solicitation and no-hire restrictions, sale of business noncompetes (but it limits what can be considered a sale of business non-compete), forfeiture agreements, and non-competes outside of the employment relationship.
Although the bill is short, it provides plenty of fodder for discussion. As I observed about the previous legislation, which also spelled out presumptively reasonable terms, employers that choose to impose restrictions of no more than six months may find that is easier to enforce a non-compete than in our current common law environment. As to the exceptions permitting a longer duration, there is a circularity to the legislation, as employers will not know when they are drafting their agreements whether an employee will breach his fiduciary duty or steal information (thus justifying a longer duration). This may cause employers to draft restrictions with an alternative duration built in: the agreement might state, for example, that the noncompete is for six months, but if the employee violates his fiduciary duty or steals information, the duration is two years. Finally, I suspect that the $250,000 compensation threshold will prompt pushback from various business and industry groups who will argue that there are plenty of senior employees who are entrusted with significant confidential information who do not earn $250,000 but who should be subject to restrictions longer than six months.
It is too early to say whether there will be sufficient momentum for this legislation to overcome opposition to noncompete reform.
Stay tuned….