USA Trends and Developments Contributed by: Dawn Mertineit, Seyfarth Shaw LLP
targeting unlawful restrictive covenants. Thus, even assuming the non-compete ban does not survive judicial scrutiny, US-based employers should not presume that the FTC will turn a blind eye to misuse of restrictive covenants. In addition to the FTC’s attempts to regulate non- competes, the National Labor Relations Board (NLRB) continued to focus on restrictive cove - nants in 2024, including its now-former general counsel Jennifer Abruzzo having issued mem - oranda in 2023 and 2024 targeting employers who require employees to sign non-competes and so-called “stay-or-pay” provisions. Howev - er, the NLRB has a new acting general counsel who rescinded those memoranda, and just as with the FTC, it is anticipated that the leadership change at the NLRB means that employers may face weaker headwinds from the NLRB in 2025. State-Level and Judicial Initiatives Regardless of what happens at the federal level, it is anticipated that the trend of state legisla - tures tightening laws on restrictive covenants will continue. Recent years have brought not only industry-specific legislation limiting the scope of permissible covenants (most notably in the healthcare industry, in which approximately half of the states impose bans or significant limita - tions on restrictive covenants for employees in this industry), but also a general ban of employ - ee non-competes in Minnesota, as well as a pair of draconian new California statutes, one of which required notification to employees and former employees regarding unenforceable cov - enants. The other purported to invalidate all non- competes in California, regardless of where the employee lived, or provided services when the agreement was executed. A spate of cases (on top of those already filed) on a dual-jurisdiction track is anticipated, in which employees who have decamped to California after resigning seek
a declaratory judgment that their non-compete (or other restrictive covenants) is unenforceable, while the former employer files in a more friendly state, seeking to uphold the covenants. The firm predicts inconsistent judgments in such actions, with a potential circuit split arising in the future. Employers should expect states to continue implementing laws targeting restrictive cov - enants for low-wage workers, imposing indus - try-specific restrictions (or outright bans) and requiring notifications to employees that may be onerous and confusing. Businesses should also anticipate that the patchwork of state laws will become even more varied, further under - scoring the need for well-drafted agreements that contemplate the laws of the states where employees may live or provide services – as well as underscoring the need for robust trade secret protections in the event such covenants do not survive judicial scrutiny. Finally, it is not just legislative action changing the playing field. Many courts nationwide have begun to curtail the use of restrictive covenants without clear legislative action, including most notably in Delaware (which many businesses use as the governing law and/or forum in their agree - ments). This trend is not limited to employment agreements, but includes restrictive covenants entered into in the sale of a business. For exam - ple, multiple cases in 2024 affirmed that Dela - ware courts generally hesitate to “blue pencil” or modify overbroad covenants. See Hub Grp., Inc v Knoll, 2024 WL 3453863, at *1 (Del. Ch. July 18, 2024) (refusing to modify an overbroad covenant, and noting that blue-penciling risks “perverse incentive towards overbreadth or lack of clarity” and citing Kodiak Bldgs. Partners, LLC v Adams, 2022 WL 5240507, at *5 (Del. Ch. Oct. 6, 2022), a sale of business case); Fortiline, Inc v McCall, 2024 WL 4088629, at *4 (Del. Ch. Sept.
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