Mid-Year Review: New Non-Compete Legislation in 2016

by Nutter McClennen & Fish LLP
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[co-author: Brian Pilchik, summer associate]

In the first half of 2016, we have already seen significant changes to a number of state non-compete laws. In this post, we provide a compilation of recently enacted legislation in Alabama, Connecticut, Idaho, Oregon, and Utah, as well as several important developments at the federal level.

Against this nationwide backdrop, there is non-compete legislation pending in Massachusetts that would be of greater consequence than any of these other state measures. Two proposed bills, Bill H. 4434 and Bill S. 2418, would severely curtail the use of non-competes in the Commonwealth, potentially placing strict duration and consideration requirements on any non-competes signed by Massachusetts-resident employees. The final product, in one form or another, should come out of the legislature later this month.

Alabama

Alabama Code 1975 §§ 8-1-190-197 took force on January 1, 2016. The law:

  • Creates a presumption that non-competes of two years or less are reasonable in duration
  • Allows courts to blue pencil to reform overbroad or unreasonably long restraints while preserving the rest of the contract
  • Shifts the burden of proof to require the employee to establish that enforcement would cause him/her undue hardship

The new law is not explicit on whether it will apply retroactively. However, the law does repeal former provisions, making it possible that any non-compete issue litigated after January 1st will be judged under the new provisions.

Connecticut

Connecticut Public Law 16-95, concerning physician non-competes, was signed on June 2, 2016. The law limits non-competes entered into, amended, or renewed on or after July 1, 2016, in the following way:

  • Limits physician non-competes to a duration of one year from termination and 15 miles from the physician’s primary practice site
  • Renders non-competes in expired physician employment contracts unenforceable, unless the employer offers to renew the contract on similar conditions
  • Renders physician non-competes unenforceable unless the physician left voluntarily or was terminated for cause
  • Places the burden of proof on the physician’s employer, regardless of which party brings the dispute

Idaho

On March 30, 2016, Idaho House Bill No. 487 was signed into law. The law, which went into effect on July 1, 2016, creates a rebuttable presumption of irreparable harm where a “key employee” or “key independent contractor” breaches an agreement, but allows the worker to rebut the presumption by showing that he or she has no ability to adversely affect the employer’s legitimate business interests. The statute defines “key employees” and “key independent contractors” as the highest paid five percent of employees or independent contractors within the organization.

Oregon

Oregon House Bill No. 3236 went into effect on January 1, 2016. The amendment restricts non-competes entered into on or after January 1, 2016 to a duration of 18 months, down from the previous two-year limit.

Utah

The Post-Employment Restrictions Act, House Bill No. 251, became Utah law on March 22, 2016.  The law:

  • Limits non-competes executed on or after May 10, 2016 to a duration of one year
  • Creates employer liability for an employee’s attorneys’ fees, costs, and damages where the non-compete is found to be unenforceable
  • Exempts non-solicitation agreements, non-disclosure agreements, severance agreements, and non-competes relating to the sale of a business

Federal Developments

In addition, there has also been federal activity on the non-compete and trade secrets front. As we discussed in a previous post, the White House recently weighed in and released a report focused on the use of non-competes. Furthermore, as our IP colleagues have discussed, President Obama signed the Defend Trade Secrets Act into law on May 11, 2016, creating a federal civil remedy for the misappropriation of trade secrets.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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