States have increasingly passed legislation in recent years aimed at curbing the use of restrictive covenants by employers. Recently, Nevada, Oregon and Washington, D.C. each passed legislation restricting the use of post-employment non-competes.
D.C.’s new ban on non-compete agreements, once implemented, will be the most restrictive of the group, and possibly the most restrictive law in the country. The Ban on Non-Compete Agreements Amendment Act bans post-employment non-compete provisions in essentially all employment agreements in D.C., while also barring employers from prohibiting employees from simultaneously working for other employers. The Act further prohibits employers from retaliating against, or threatening to retaliate against, any employee who refuses to comply with a non-compete agreement or policy. Given the breadth, this law has faced significant pushback – particularly regarding the prohibition on simultaneous employment by multiple entities – and, as a result, a further bill, the Non-Compete Conflict of Interest Clarification Amendment Act of 2021, is pending which would loosen some of the restraints in the initial act. Given the issues facing this legislation, the effective date has been pushed back from January 2022 until 1 April 2022, and it remains unclear what the final enacted legislation will look like.
On 25 May 2021, Nevada Governor Steve Sisolak signed into law Assembly Bill (AB) 47, which amends Nevada’s noncompetition statute. Effective 1 October 2021, the law bans non-compete agreements between an employer and an employee who is paid solely on an hourly wage basis, exclusive of any tips or gratuities. This builds on a prior prohibition on restricting former employees from working for prior customer or client if the employee did not solicit the former customer or client, the customer or client voluntarily chose to leave, and the former employee generally complies with the non-competition covenant.
AB 47 further prohibits employers from bringing an enforcement action to restrict any of these activities. If the employer or employee file a lawsuit seeking enforcement or challenging a noncompetition covenant, and the court finds that (1) the covenant applies to an employee paid on an hourly basis or (2) the employer has wrongfully restricted the former employee from providing services to a former client or customer, the court is required to award the employee their reasonable attorneys’ fees and costs.
Similarly, in Oregon, Governor Kate Brown signed Senate Bill 169, which will further restrict non-competition agreements entered into on or after 1 January 2022. SB 169 significantly modifies Oregon’s noncompete statute by (1) reducing the maximum length of an enforceable non-compete agreement from eighteen to twelve months and (2) setting a minimum salary threshold necessary for an enforceable non-compete agreement. With limited exceptions, a non-compete will be void unless the employee’s salary and commissions at the time of termination exceed USD100,533 (adjusted yearly for inflation).
Importantly, however, these requirements do not apply to other restrictive covenants like non-solicitation agreements, agreements not to transact business with customers, or confidentiality agreements.