Does Your Non-Compete Agreement Violate Federal Law?

As an employer, you are most likely very aware of your competitors for both customers and employees. You certainly don’t want to invest time and resources training an employee only to see them jump ship and work for a competitor, taking with them the knowledge, training, and proprietary information/trade secrets they gained in your employ. Employers have typically sought to prevent this from happening by utilizing non-compete agreements.

Non-compete agreements are a type of restrictive covenant between employers and employees that restrict the departing employee’s ability to work for a competitor, for a specified length of time in a certain location. They also can prevent the employee from starting a competing business for a certain period or assisting others in competing. If they chose to work elsewhere, they would be limited by time and location. For example, they may be forced to work outside a 50-mile radius for a year or longer.

These agreements protect employers from unfair competition and help them retain employees. However, there has been some backlash against non competes in recent years. A number of states, including California, North Dakota, Minnesota, and Oklahoma have banned the use of noncompete agreements entirely. Other states are enacting restrictions on employers’ usage of non-compete agreements, such as compensation thresholds and instituting requirements for advance notice.

These restrictions are especially important. In the past, non-competes were limited to high-wage workers, such as CEOs and those in the tech industry. Now, a host of workers can be restricted by a non-compete.

While non-compete agreements generally are governed by state law, you may wonder: Does it violate federal law? Let’s first take a look at Texas law before examining federal limitations.

When are Non-Compete Agreements Enforceable?

Overall, non-compete agreements are enforceable in Texas. However, they must be reasonably drawn and designed to protect the employer’s legitimate business interests. They cannot be used simply to punish employees for leaving the company for whatever reason. But there is an exception: Some professions are exempt from non-competes in Texas, including physicians, attorneys, and licensed clinical social workers.

There are legitimate reasons for having non-competes in place. They include prohibiting employees from sharing or using trade secret and confidential information, as well as from stealing customer relationships.

Statement on Employer-Mandated Non-Compete Agreements from NLRB General Counsel

According to a recently issued statement from NLRB General Counsel Jennifer Abruzzo, some employer-mandated non-compete agreements violate the National Labor Relations Act (NLRA). The statement asserts that many of these agreements violate employee rights under Section 7 of the NLRA, regardless of a workforce’s union status. Employers may commit unfair labor practices by maintaining or enforcing these non-compete agreements and may be charged with unfair labor practices.

Abruzzo cited these examples of protected employee activities that may be harmed by non-compete agreements:

  • “Demanding better working conditions by concertedly threatening to resign;
  • Carrying out concerted threats to resign or otherwise concertedly resigning to secure improved working conditions;
  • Concertedly seeking or accepting employment with a local competitor to obtain better working conditions;
  • Soliciting co-workers to work for a local competitor as part of a broader course of protected concerted activity; and
  • Seeking employment, at least in part, to specifically engage in protected activity with co-workers.”

Abruzzo also stated that some non-competes could be legal in some cases if they are “narrowly tailored to address special circumstances justifying the infringement on employee rights.”

At a federal level, non-compete agreements are still currently enforceable. However, the Federal Trade Commission (FTC) is taking steps to eliminate them. The agency released a proposal to prohibit non-competes back in January, stating that they are an unfair method of competition and violate the Federal Trade Commission Act. The FTC also states that non-competes suppress wages and stifle innovation. They also make it harder for entrepreneurs to start new businesses. A final rule has not been released yet, although one may come sometime in 2024.

Still, employers should examine their non-compete agreements for potential compliance concerns. With many states banning these agreements, it is possible that other states will jump on the bandwagon soon and start mandating restrictions and bans.

Contact Our Frisco Employment Law Attorneys Today

Non-compete agreements can be controversial. While Texas does allow them, they must narrowly define geographic, scope, and time restrictions, and meet certain other criteria to be legal and enforceable.

If you would like assistance with non-compete agreements, or any other employment or business law matter, the Frisco employment lawyers at Simon | Paschal PLLC can help. To schedule a consultation, call (972) 893-9340 or contact us online.

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