Non-Compete Agreements: Provide Them Ahead of Time – But Don’t Let Them Be Signed

On March 8, 2022, the Fifth Circuit Court of Appeals held that a non-compete agreement was not enforceable because the employer seeking to enforce the agreement had presented it to the employee, and the employee had signed it, before the employee’s first day of work.  A few months later, Colorado Governor Jared Polis signed into law a new statute requiring that notice of a non-compete agreement be provided to prospective employees before they accept an offer of employment.

In finding a non-compete provision must strictly comply with Louisiana law, the court in Rouses Enterprises, L.L.C. v. Clapp, No. 21-30293 (5th Cir. Mar. 8, 2022), found that Louisiana law (LA. REV. STAT. ANN. § 23:921(A)(1)) permits certain non-compete agreements between employers and employees, but not between job applicants and potential employers.  Thus, the court reasoned, a non-compete agreement signed by a prospective employee before her actual date of hire was unenforceable.

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Coming August 2022: Colorado Substantially Limits Noncompete Agreements

Beginning August 10, 2022, Colorado will drastically narrow the circumstances in which Colorado employers can seek to enforce noncompete and other restrictive employment agreements. Despite Colorado law already having a general restriction against the use of noncompete agreements, the Colorado General Assembly recently passed, and Gov. Jared Polis has now signed, HB 22-1317. With this bill, Colorado joins the growing number of states enacting increased employee protections against restrictive covenant agreements, including banning such agreements with workers earning below a certain threshold.

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Third Circuit Rejects Employer’s Attempt to Block Executive’s Move to Rival Despite Non-Compete Agreement

As we have written about previously, an increasing number of states, and Washington, D.C., have limited the circumstances under which employers can bind their employees to non-compete and similar agreements, particularly when low-wage workers (however defined) are involved. The courts, however, are not immune to the trend, as evidenced by the April 21, 2022 decision from the U.S. Third Circuit Court of Appeals, ADP, Inc. v. Levin. In that case, the Third Circuit affirmed a district court’s denial of a preliminary injunction against a senior executive who had resigned from his Chief Strategy Officer position at his prior employer, ADP, to take over the Chief Executive Officer position at rival Benefitfocus.

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Washington, D.C.’s Non-Compete Ban Delayed Again

The Washington, D.C. Ban on Non-Compete Agreements Act of 2020 (D.C. Act) is on hold once again, this time due to emergency legislation signed by Mayor Muriel Bowser earlier this week.  The new legislation pushes the D.C. Act’s effective date from April 1 to October 1, 2022.  As reported here, the D.C. Act is one of the most comprehensive bans on employee non-competition restrictions to date.  It not only prohibits post-separation non-competes for employees working within the District (consistent with what a handful of states, including California, already do), but also rejects common “anti-moonlighting” provisions that prevent employees from working for another employer, including a competitor, during their employment.

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9th Circuit Says Forum Selection and Choice of Law in Employment Agreement Violate California Law

On March 14, 2022, the 9th Circuit affirmed the U.S. District Court for the Central District of California’s decision in DePuy Synthes Sales, Inc. v. Howmedica Osteonics Corp. and Stryker Corp., that invalidated the New Jersey forum selection clause in the employment contract of Stryker’s former sales associate as a matter of California law and denied Stryker’s motion to transfer the litigation to New Jersey. Though forum selection clauses are generally enforceable under federal law, the 9th Circuit reasoned that deference must be given to state law in determining the validity of a forum selection clause before considering whether the clause is enforceable under 28 U.S.C. § 1404(a).

The case involved a former Stryker medical device sales associate, Jonathan Waber, who was employed by Stryker in California and who signed an employment contract with Stryker without legal representation. The agreement included non-competition and non-solicitation provisions, and also included forum-selection and choice-of-law clauses requiring adjudication of contract disputes in New Jersey. After less than one year of employment with Stryker, Waber left Stryker to work for one of its competitors, DePuy. After receiving a cease-and-desist letter from Stryker, DePuy and Waber preemptively filed a declaratory judgment action in the U.S. District Court for the Central District of California against Stryker and its subsidiary, Howmedica.

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DOJ Encourages State Court to Consider Antitrust Principles to Invalidate Non-Compete Agreements

Non-compete agreements between employers and their employees traditionally are governed by state law. But that did not stop the Antitrust Division of the Department of Justice (DOJ) from recently filing a statement of interest encouraging a Nevada state court to consider federal antitrust principles to invalidate non-compete agreements between a large medical group and its physician-employees. Taken together with other recent actions by the president and federal enforcement agencies, the DOJ’s decision to file this statement signals a more aggressive approach to non-compete enforcement at the federal level.

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