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The White House on Non-Compete Prevalence and Enforceability

Non-compete agreements are often used by businesses to ensure that they can share trade secrets with their workers without fear of those workers being able to leave and distribute such information to their market competitors. If a business were to lose all of its valuable trade secrets (i.e., secrets about the way they conduct business or create products, as well as guarded confidential information like certain types of customer lists and customer information), it would lose its competitive edge in the marketplace. Non-competes have also been traditionally used so that businesses feel comfortable investing in the training and development of its employees, not fearing that they will invest only to have employees leave for another job without seeing a return on that investment.

However, modern trends have also seen businesses using non-compete agreements too frequently, and with little legitimate business justification. On May 5, 2016, the White House released brief that outlines the usage of non-competes nationwide, and calls for further research into the prevalence of non-compete usage and enforcement, as well as action, at a state and federal level, that will limit the negative market effects of non-competes on workers.1

In addition to the White House calling for action, several state Attorneys General have taken action on what they see as unenforceable and "unconscionable" non-compete agreements. In Illinois, the state Attorney General, Lisa Madigan, filed suit against Jimmy John's for the company's use of non-competes for its low-wage workers.2 Jimmy John's requires its workers to sign non-compete agreements that limit sandwich shop workers from taking another sandwich shop or restaurant job within two miles of an existing Jimmy John's store. Attorney General Madigan called the agreement "unconscionable" and stated in the lawsuit filing that Jimmy John's had "no legitimate business interest" in the enforcement of such agreements. In New York, Attorney General Eric T. Schneiderman announced on June 15, 2016 that the State had reached a settlement with Law360, a legal news reporting service owned by LexisNexis, regarding its usage of non-competes for editorial employees. Under the settlement agreement, Law360 will no longer require non-key employees to sign such agreements, and released all current and former editorial employees from the agreements that they had already signed.

This shift in the legal climate comes from the rise of non-compete agreements being used to restrict employees when a business doesn't really have a need to restrict them. However, businesses still need to protect their valuable trade secret and other confidential information. Two ways that businesses are now adjusting to the decreased enforceability of non-compete agreements is to start using non-solicitation and non-disclosure agreements either in conjunction with a non-compete, or in the complete absence of a non-compete.

A non-solicitation agreement is designed to allow a former employee to move to another job, even a competitor, without fear of reprisal. However the agreement prohibits the former employee from attempting to poach the clients and customers of their former employer. This allows freedom of worker movement, while also giving the business an assurance that even if an employee moves, they will be unable to harm the revenue of the business for a set time. Non-disclosure agreements are designed to prevent employees from giving or selling the confidential business information and trade secrets of their former employer to their new employer. This helps to achieve one of the initial goals of employee non-compete agreements: to ensure the original employer can maintain its competitive edge in the marketplace.

If you are a business in need of help drafting or enforcing non-compete, non-solicitation, or non-disclosure agreements, contact Miller Law Firm today to set up an initial consultation about how we can help you meet your business needs. If you are an employee that feels unfairly restricted by a non-compete agreement, contact Miller Law firm for a consultation about your rights and the potential enforceability of such an agreement.

1. For further reading, see Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses, https://www.whitehouse.gov/sites/default/files/non-competes_report_final2.pdf; see also What You Need to Know About Non-Compete Agreements, and How States are Responding, https://www.whitehouse.gov/blog/2016/05/05/what-you-need-know-about-non-compete-agreements-and-how-states-are-responding.

2. http://www.reuters.com/article/us-jimmyjohns-lawsuit-idUSKCN0YU2RS

3. http://www.ag.ny.gov/press-release/ag-schneiderman-announces-settlement-major-legal-news-website-law360-stop-using-non

4. For more information on how North Carolina treats non-compete agreements, see our Blog: http://www.miller-lawfirm.com/blog/2016/04/clarification-for-covenants-not-to-compete-beverage-systems-of-the-carolinas-llc-v-associated-bevera.shtml

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