The Recent Scrutiny of Non-Competes

Non-compete agreements are commonplace in many employment contracts, in a variety of industries and occupations. In March of 2016, the U.S. government began taking direct aim at restrictive covenants in the private sector. The Office of Economic Policy of the U.S. Department of the Treasury issued a report that looks at case studies, theoretical papers and surveys of various professions, to make observations regarding the pluses and minuses of non-competes.

Some state government agencies appear to have stepped up their enforcement efforts. The New York Attorney General’s Office issued a press release announcing that a nationwide medical information services provider agreed to stop using non-competes for most of its employees in New York. The Illinois AG’s Office filed a lawsuit against Jimmy John’s franchises “for imposing highly restrictive non-compete agreements on its employees, including low-wage sandwich shop employees and delivery drivers whose primary job tasks are to take food orders and make and deliver sandwiches.” Jimmy John’s previously had reached a deal with the New York Attorney General’s Office and agreed to not use non-compete agreements for most of its workers in New York.

Government agencies and legislatures appear focused on companies that require all employees to sign non-competes. Selective use of non-competes may go a long way toward staving off challenges. Make sure to document the business rationale for why employees – including at-will employees who can be terminated for any reason – are required to sign non-compete agreements.