When you consider implementing employment incentives, enhanced benefits and retention bonuses to retain talent, you also should take a close look at how to legally impose restrictive covenants that also can promote retention, according to attorneys James Cromley and Matthew F. Prewitt of the ArentFox Schiff [CQ] law firm.
As companies offer employees new incentives to increase retention, those same incentives provide opportunities to seek enhanced covenants in return, the lawyers hold. “In a competitive labor market, these agreements become all the more important – no one wants an employee using knowledge of their company as a sales pitch to a prospective employer (who just might also be their biggest competitor).”
One problem is that your non-compete agreement from just one year ago now may no longer be enforceable. The law in many states has changed and continues to change in ways that can already have rendered your current non-competes obsolete.
Within the past year, changes in Illinois, Nevada and Oregon law have significantly limited the enforceability of restrictive covenants. In Illinois and Oregon, non-competes can’t be enforced if the employee makes less annually than $75,000 and $100,533, respectively. Nevada invalidated all non-competes for employees paid an hourly wage.
In Illinois, even non-solicitation covenants (for employees or customers) are now unenforceable for employees making less than $45,000 annually.
Additional consideration may be required to make your restrictive covenants enforceable, Cromley and Prewitt point out. More states require employers to pay extra for restrictive covenants, including Wyoming and Massachusetts,
The silver lining is that if you consider offering bonuses for retention or otherwise, it might be the perfect time to pair them with refreshed covenants.
A workforce requires extra attention when employees live (and work) in locations other than the office location to which they are assigned. The rise of fully remote employment positions means that some employees may never actually set foot in the physical office location to which they are assigned. This divergence can have far-reaching effects on the governing law and enforceability of restrictive covenants, the attorneys say.
States like Massachusetts, California and Washington restrict choice-of-law or forum-selection provisions from being enforced against their citizens. In other states, these provisions also may be unenforceable depending on public policy considerations.
If an employee working from home in California is assigned to an Arizona office, and agreed to covenants that include Arizona choice-of-law and forum-selection provisions, both may be unenforceable. And the difference between Arizona and California law could mean the difference between an enforceable and an unenforceable agreement.
Employers also should not forget the employee non-solicitation covenant. Cromley and Prewitt stress.
Any departing employee can turn into a recruiter for their new employer. To prevent competitors from picking off talent, consider non-solicitation covenants in employment agreements. (These differ from “no-poach” agreements between employers agreeing not to solicit the other’s employees, which can violate public policy and are under increasing scrutiny from the U.S Department of Justice.
In most states, the standard for enforcement of non-solicitation covenants between employers and employees is more lenient, employer-friendly and subject to less scrutiny than non-compete covenants. Drafting these agreements, however, still requires careful consideration of the current case law and relevant statutes.
“In this increasingly competitive market, it is more important than ever for companies to ensure compliance while maximizing the enforceability of their employment agreements,” Cromley and Prewitt warn employers.
