Effective July 1, 2023, Minnesota will no longer allow covenants not to compete, with limited exceptions for the sale or dissolution of a business. The law is not retroactive, nor does it apply to nondisclosure agreements or client/customer nonsolicitation restrictions.
Effective August 10, 2022, Colorado’s laws governing restrictive covenants were amended to provide additional limitations and hurdles for employers who seek non-compete and non-solicit agreements with their employees, including compensation thresholds and notice requirements. The new law also sets forth steep penalties for any violations. This article provides the details of these new restrictions.
Restrictive covenants were once the exclusive province of the courts in each state. That is no longer the case. Although case law still governs restrictive covenants, states also are enacting restrictive covenants statutes.
Today, 30 states (including Washington, DC) have laws affecting restrictive covenants. Unlike state statutes regulating trade secrets (which largely follow the Uniform Trade Secrets Act), the state statutes governing restrictive covenants run a wide gamut. These changes reflect an increasing hostility towards restrictive covenants. In this Westlaw Today article, McDermott’s Brian Mead and Aaron P. Sayers provide an overview of state statutes that became effective in late 2021 or are becoming effective in 2022.
As of January 1, 2022, a new Illinois law governing restrictive covenants (Public Act 102-0358) is in effect. This law outlines the requirements for valid noncompetition and nonsolicitation agreements, and enforcement of those covenants. It applies to all agreements entered into on or after January 1.
The most significant issues in any employment or severance agreement are going to be personal to that situation, and will be driven in part by special issues and circumstances. For instance, succession planning issues may be incredibly important to the organization when the CEO is 65 years old and there is no clear successor, and may be far less important when the CEO is 45 and there are very able executives ready to assume the CEO role if necessary. With that said, there are certain considerations to keep in mind for all who are drafting these contracts.
McDermott’s Ralph E. DeJong contributes to an article in The Practical Lawyer that identifies and describes what frequently are the most important considerations in an employment or severance agreement between an exempt organization and its CEOs.
Originally published in The Practical Lawyer, December 2019
The UK Court of Appeal has handed down its decision in Rodgers v Sunrise Brokers LLP [2014] EWCA Civ 1373, a case in which the High Court ruled that an employee who resigned in breach of contract remained employed by the employer, and was not entitled to be paid if he refused to come back to work. You can access our alert on the original High Court decision here.
Although the Court of Appeal rejected Mr Rodgers’ appeal in its entirety, it made some interesting observations, which should be taken into account by employers seeking to enforce restrictive covenants.
Background
Mr Rodgers had entered into a fixed-term employment contract with Sunrise Brokers LLP (Sunrise), under which he could not lawfully terminate the contract until September 2015. Thereafter, he was subject to a suite of restrictive covenants of between six and 12 months’ duration, which he accepted were reasonable.
Mr Rodgers walked out on 27 March 2014. Before doing so, he had accepted employment with one of Sunrise’s competitors and agreed to start work for that competitor at a later date. He refused to honour the rest of his contract with Sunrise.
Sunrise chose not to accept Mr Rodgers’ purported resignation, as it was in breach of the terms that had been agreed. The company instead took the view that the contract remained live, but refused to pay him on the basis that he was refusing to come to work.
The High Court Decision
Sunrise voluntarily agreed to shorten the length of the contract so that it would end in October 2014 instead of September 2015. The High Court issued an injunction holding Mr Rodgers to the terms of his employment contract until that date, but only enforcing his restrictive covenants until 26 January 2015. The restrictive covenants were therefore enforced for less than the six month period specified in Mr Rodger’s contract of employment.
The Court of Appeal Decision
The Court of Appeal sanctioned this approach. In doing so, it confirmed that the High Court was entitled to enforce the restrictive covenants for less than the six month period contained in Mr Rodger’s employment contract.
The Court of Appeal’s judgment is a useful reminder that, in order to obtain injunctive relief against an employee for the full duration of a restrictive covenant, an employer must show both that
It is easy to fall into the trap of only addressing the first of these requirements, but employers wishing to enforce restrictive covenants should assess whether or not they have an arguable case on both fronts. If they fail to do so, they could find themselves with a covenant that is both reasonable and theoretically enforceable, yet with no, or a reduced period of, protection from the Court.
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