In the best of economic times, some courts can be reluctant to grant immediate injunctive relief and enjoin an employee from working in order to enforce employee post-employment restrictive covenants. Now that we are in the midst of a global pandemic and an economic recession, that challenge has grown. Current economic considerations are causing some courts to weigh the “balance of harms” on injunctive relief applications in favor of employee defendants who are faced with the difficulty of finding other work in an economic downturn with high unemployment. Nevertheless, our review of recent decisions from around the country indicates that courts remain willing to consider injunction motions on an emergent basis to enforce restrictive covenants, particularly where there is a threat of trade secret misappropriation.
If there was any question about whether there is a growing national trend to limit the enforceability of noncompetition agreements, 2019 settled the matter. Seven states enacted new statutes designed to limit the circumstances in which noncompetition agreements may be used. The Federal Trade Commission (FTC) announced that it is considering a regulation to restrict the use of noncompete clauses in employment agreements, and Republican lawmakers on Capitol Hill have held hearings and introduced legislation to create a federal ban on certain noncompete restrictions.
The following is a summary of the top 10 noncompete law developments of 2019. These developments reflect an ever-increasing hostility by lawmakers and courts toward noncompetition agreements. They also demonstrate the need for employers to stay current on the diverse state-specific limitations governing restrictive covenants, new federal activity in the area and ongoing case law developments. In light of this trend, national employers would do well to: be selective in identifying those categories of employees required to sign such agreements; narrowly tailor the scope of such agreements; and rely on choice-of-law and venue provisions, as allowed, to maximize the chances of enforceability.