USA – NORTH CAROLINA Law and Practice Contributed by: Phillip Strach, Alyssa Riggins, Nathaniel Pencook and Cassie Holt, Nelson Mullins Riley & Scarborough LLP
1.5 Other Employment Terms Employers may, but are not required to, provide for paid vacation or sick time. Any accrued paid sick or vacation time must be paid out upon termination, unless the employer has an advance written policy informing the employee of the forfeiture of these accrued benefits upon termination. Employers are required to provide unpaid leave as required for Family and Medical Leave Act (FMLA) or Americans with Dis - abilities Act (ADA) qualifying events. Employers must give unpaid time off to vote and four hours per school year for a parent to volunteer in their child’s school. Confidentiality and/or non-disparagement clauses are allowed in employee agreements or severance agree - ments, within the confines of National Labor Relations Board (NLRB) guidance. The Federal Trade Commission’s (FTC) 23 April 2024 decision to ban non-competes was successfully chal - lenged in court and is currently on appeal. The current administration is highly likely to abandon the appeal, meaning the FTC’s non-compete ban is not likely to go into effect. Efforts to limit non-competes for workers under a USD75,000 salary threshold (see House Bill 269) have made no progress in the General Assembly. Accordingly, in North Carolina, non-competes are only limited by the following considerations: To be enforceable under North Carolina law, restrictive covenants must be: • in writing; • part of an employment contract or in connection with the sale of a business; 2. Restrictive Covenants 2.1 Non-Competes • supported by valuable consideration; • reasonable as to time and territory; and • reasonable as to the scope of activities covered by the restriction. Valuable consideration is a key component of an enforceable non-compete under North Carolina law. Continued employment is insufficient consideration. Instead, there must be some new consideration – a promotion, a raise, a bonus or some combination
thereof – for a restrictive covenant to be valid under North Carolina law for a current employee. Although North Carolina does not have a hard-line rule on the reasonableness of time restrictions, North Carolina courts generally approve of two-year restric - tions. The duration and geographic scope of a restric - tive covenant are considered together to determine if it is reasonable. Courts may approve longer restric - tions if the geographic territory is relatively small – likewise, courts may approve broader geographic territories if the duration of the restriction is relatively short. Regardless, courts rarely approve restrictions of five years or more. Courts will look at the following six factors when determining whether a non-compete or non-solicita - tion agreement is reasonable as to time and territory: • the geographic area of the restriction; • the area where the employee was assigned to, and actually did, work; • the area in which the company does business; • the nature of the business; and • the nature of the employee’s duty and the employ - ee’s knowledge of the business operation. Additionally, the scope of the activities covered by the non-compete must be tied to the work performed for the employer. Courts have refused to enforce non-competes that prevent an employee from doing any work for a competitor, regardless of whether the work is of the same nature as that performed for the employer. Additionally, non-competes that preclude “direct or indirect” competition have been unenforce - able owing to the scope preventing, for example, own - ership of a mutual fund holding shares of a competitor. 2.2 Non-Solicits Non-solicitation clauses have gained renewed atten - tion in light of recent legal developments calling into question the longevity and effectiveness of non-com - petition agreements. The enforceability of non-solici - tation clauses under North Carolina law is analysed in the same way as other restrictive covenants – ie, they must be in writing, part of a contract for employment, for valuable consideration, and reasonable as to time and territory. Non-solicitation agreements tailored to
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