The issue of how to protect a business’ clientele and confidential information when an employee leaves for a new job is a headache faced by most employers. One common method for addressing this issue is the inclusion of what is known as a “post-employment covenant” in the employee’s employment contract (which should be signed when the employee is hired). Post-employment covenants can cover a variety of different areas including confidential information, restrictions on competition and the solicitation of customers and employees.
During 2017, a number of states spent time reviewing their position on post-employment contracts and several states made substantial changes to their laws. However, the various legislatures which were active in 2017 seemed to focus their attention on the issue of non-competition; agreements which place restrictions on an employee’s ability to compete with their former employer.
Several states already had laws which banned or regulated the use of non-competes, such as Illinois, Florida, Colorado and Texas. Other states, such as Nevada, passed legislation addressing the topic for the first time in 2017 while others, such as New Jersey, began to seriously consider enacting legislation addressing such. Not all the states who attempted to pass such legislation were successful; Massachusetts tried to pass state-wide legislation but failed. However, Massachusetts did previously pass laws which restricted the use of non-competes for doctors, nurses, psychologists, social workers, lawyers and those in the broadcasting industry.
Certain states which already had laws that address these subjects chose to impose additional restrictions on the use of non-compete provisions. California, which is known for its ban on non-compete provisions except those related to the sale of a business, chose to impose additional restrictions on the use of choice of law provisions in employment contracts and how such are applied to the post-employment covenants in such contract.
It is important to remember that state law is not black and white and that many states require that a court assess the reasonableness of post-employment covenants when determining if they are enforceable or not. It is important that a business be able to show that it carefully considered the use of the post-employment covenants, the terms of such, and that it determined that it was needed to protect a legitimate interest of the employer/business.
When considering the use of post-employment covenants, it is important to include the following items in your review:
- What type of employees do you intend to require sign the post-employment covenant (managerial, administrative, laborers, etc.)? How are these employees paid (hourly or salary)?
- Where are your employees performing services for the business at? Do your post-employment covenants comply with the applicable law in the various states where your business has employees?
- What impact do promotions have on your employees? Does their access to sensitive information change?
- Has your business changed? Are you opening a new location or closing a location? Have the products or services you offer changed in any way?
- Are post-employment covenants truly necessary or will another type of agreement (such as a proprietary rights agreement with trade secret protection) provide the legal protection that your business needs?
- Are you willing to compensate your employees in exchanging for entering into these agreements? Does the compensation you are willing to offer meet the standards set by the applicable state?
Due to the recent trend to resolve litigation locally and the increasing number of multi-jurisdictional employers (employers who are based in many states or have employees located in multiple states), it is important that a business regularly reviews the contracts it uses with its employee(s) to make sure they abide by the laws of the state where the employee(s) will be located (and where the employment issue will likely be litigated).
Should you have any questions about the post-employment covenants or multi-jurisdictional businesses, or any other laws that may affect your business, or would like to schedule a free initial consultation, please contact Waltz, Palmer & Dawson, LLC at (847)253-8800 or contact us online.
Waltz, Palmer & Dawson, LLC is a full-service law firm with various areas of service to assist your business, including: Employment Law, Intellectual Property, Commercial Real Estate, Business Immigration, Litigation and general Business Law services. Individual services include Estate Planning, Wills and Trusts, Probate, Guardianship, Divorce and Family Law.
This article constitutes attorney advertising. The material is for informational purposes only and does not constitute legal advice.
To subscribe to our business e-newsletter, pleases send an email request to www.info@navigantlaw.com