Are Your Noncompete Agreements Dying of Old Age?

The importance of taking a regular and critical look

Partners Robert G. Lian Jr. (Washington D.C.), Brian Patterson (Houston), and counsel Courtney L. Stahl (Houston), Labor and Employment practice, Akin Gump

Key points

  • Tight labor markets are leading courts and legislatures to closely scrutinize noncompetes and other restrictive covenants.
  • If there are changes in an employee’s job and/or the company’s business, it may be prudent to proactively amend or supplement the existing standardized documents to prophylactically further shield the company against threats to its customer relationships, employees and confidential information.
  • Regular review and maintenance can help maximize employers’ ability to protect their businesses against breaches of former employees’ contractual agreements and unfair competition.

Noncompetition and other restrictive covenants provide valuable protection against unfair competition from departing employees. However, legal developments and changes in an employee’s job or the nature of the company’s competition can cause employers’ restrictive covenant agreements to become outdated and potentially unenforceable. Periodic review and maintenance of these agreements is crucial to ensure employers get the maximum available legal protection from theft of their customer base and business opportunity, employee talent and confidential information.

The effect of statutory changes

Because they impede employees’ ability to change jobs freely, noncompetition agreements, as well as provisions barring solicitations of former customers or employees, often are subject to more stringent rules than ordinary contracts. Some states, like California, Oklahoma, Montana and North Dakota, effectively ban noncompetition agreements altogether outside the context of the sale of a business. Others, like Colorado, Georgia, Louisiana, Massachusetts and Oregon and soon Washington state, limit the types of workers to which they can apply or require that other elements be present.

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