A sampling of states' noncompete rules

Know your state's law -- they vary quite a bit

Here's a look at several of the country's most populous states' approaches to noncompete agreements. (Read our story, "Don't sign away your future: Noncompetes done right.")

California

"California clearly has a well-settled policy in favor of open competition and ensuring that there is mobility for the workforce," says Millicent N. Sanchez, a director at Swerdlow Florence Sanchez Swerdlow & Wimmer in Beverly Hills, Calif.

The state essentially bans noncompete agreements, except those stemming from the sale of a business, Sanchez says. An owner selling his business can legally be asked to sign a noncompete agreement because the person profiting from the sale has a duty not to dilute the value of the company being sold.

California's stance does not mean, however, that its courts won't enforce agreements stemming from employment in other states. "There are cases where California courts have deferred to other state courts when employees have tried to come to this state and violate their existing noncompete agreements," Sanchez explains.

Texas

State law says that employers can ask their workers to sign noncompete agreements if they are given confidential or proprietary information and/or specialized training, says Ronald M. Gaswirth, a partner at Gardere Wynne Sewell LLP in Dallas.

Companies can also ask existing employees to sign such agreements, as long as they meet the statute's requirements, he says. The state does not require employers to offer additional consideration in these cases because it considers continued employment sufficient consideration.

The statute does not lay out any specific restrictions when it comes to the scope or duration of noncompete agreements, although the length of time or the geographical scope must be reasonable, Gaswirth says. However, courts have had various opinions on what is reasonable and consider the nature of each position in question when deciding individual cases.

As for modifying agreements, Texas courts will do so in cases where the noncompete agreements have a so-called blue-pencil provision, Gaswirth says. This provision says if the courts find a part of the agreement unenforceable, it can modify that part. "But if there's not that provision, then courts are all or nothing," Gaswirth adds.

New York

New York employers can ask employees to sign noncompete agreements at any time. They do not have to give new hires the contracts in advance, and they do not have to give existing employees any additional consideration, such as a raise, if they're asked to sign one, says Susan Joffe, an associate professor at Hofstra University School of Law in Hempstead, N.Y.

However, in cases of disputes, New York courts do weigh the facts of each individual case. For example, the courts consider the position of the employee involved as well as whether there was any severance. Joffe says the courts are more likely to enforce a noncompete against an executive who received severance equal to the time of the restrictions laid out by the noncompete, and they're less likely to enforce the agreement against a lower-level employee, such as a programmer, who received no additional pay when he or she quit.

In addition, New York courts will modify noncompetes that they think are overly broad, Joffe says.

Also, she notes that New York courts generally won't enforce noncompete agreements in most cases where the workers were fired or laid off. "If a company wants to fire someone and then enforce the agreement, most courts will say that's unfair to the employee," she says.

Florida

Companies that want to have an enforceable agreement must comply with the state's statue governing these contracts. If the contract does not comply with the law, courts can consider it void and unenforceable, explains Patrice A. Pucci, an adjunct professor at Stetson University College of Law in Gulfport, Fla., and a lawyer in private practice in St. Petersburg, Fla.

The statute says the noncompete agreement must be in writing, although employers do not have to give the agreement to new hires in advance of their starting day.

The Florida law also stipulates that the noncompete agreement can be enforced even in cases where the company has fired or laid off the worker, Pucci says. But if the company breached any part of the agreement in the process laying off or firing a worker, the courts could rule that the noncompete is unenforceable.

However, companies can't require noncompete agreements across the board, Pucci says. The law specifically says that the agreements have to be based on legitimate business interests, which are defined under the statute.

"That's where cases usually turn," she notes.

The law also establishes parameters for noncompetes, specifically related to how long they can be in effect, Pucci says. However, there are no specifications regarding territorial restrictions.

Florida courts can modify agreements, she adds. But judges who modify agreements must be sure that their changes comply with the state law.

Illinois

"The courts in Illinois generally disfavor them, particularly in the employee-employer context," says Frederick R. Ball, a partner in the Chicago office of Duane Morris LLP.

For noncompetes to be enforceable in this state, Ball says they must be limited in time, scope and geography. They must also protect a legitimate business interest.

The state does not require companies to give new hires these agreements in advance of their starting date "because the employee can refuse to sign it," Ball says, adding that he knows employees who have refused to sign them and were hired anyway.

Companies can ask existing employees to sign them, with continued employment being enough of a consideration to make the agreements enforceable, Ball explains.

However, the length of time for continued employment can become an issue in disputed cases, he says. For example, most courts won't enforce a noncompete agreement that an employee signed just several days before termination. Similarly, the courts are unlikely to enforce a noncompete that an employer asked an employee to sign as part of a termination agreement.

"Illinois courts are very concerned about anticompetitive behavior," Ball says.

However, Illinois "is much friendlier to restrictive covenants if it involves a sale of a business," Ball adds, explaining that the courts look at those agreements differently than they do those governing employer-employee relationships.

Copyright © 2009 IDG Communications, Inc.

  
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