Non-Compete Reform Bill Set to Become Law

Published: NEHRA News
August 2, 2018

At the end of this current legislative session, the Senate placed a non-compete “reform bill” within an appropriations bill. The reform bill – S. 2625 dated July 23, 2018, essentially mirrors H. 4868 set out below. On the last day of the session, the House approved the Senate formulation. The bill is now on its way to the Governor’s desk for signature.

At approximately 1 a.m. on August 1, 2018, the House approved a Senate appropriations (S 2625) bill which contained the non-compete reform provisions. The House bill – H 4868 –  will allow non-competes, but only under the following limited conditions:

  1. The agreement must be in writing and expressly state that the employee has the right to legal consultation prior to signing;
  2. the agreement must be provided to the employee 10 days before commencement of employment;
  3. if the agreement is entered into after commencement of employment it must be supported by additional consideration – continued employment is not enough;
  4. the agreement must be tailored to protect one or more of the following legitimate business interests of the employer: trade secrets; confidential information; or the employer’s goodwill;
  5. the stated post-employment restrictive period may not exceed 12 months;
  6. the employer must pay the employee for the 12 month “sit out” period “at least 50 percent of the employee’s highest annualized base salary paid” within the 2 years preceding termination.

Moreover, H. 4868 proscribes entirely the enforcement of non-compete agreements under the following circumstances: nonexempt employees under the Fair Labor Standards Act; undergraduate or graduate students in an internship; employees terminated without cause or laid off; and employees under the age of 18 or younger. preceding termination.

These non-compete reform bills – including H 4868 – also called for the simultaneous adoption of a form of the Uniform Trade Secrets Act which is presently the law in most states.

These formulations would allow for injunctive relief “upon a showing that information qualifying as a trade secret has been or is threatened to be misappropriated.”

The passage of H. 4868 and the Governor’s expected approval of same, will greatly alter the current, broad-based judicial landscape of non-compete enforcement, making non-competes much less useful to employers relying on same to protect their businesses.