Unless and until there is binding federal law governing noncompetes in all 50 states, noncompete agreements will continue to be governed by state law. In recent years, state legislatures have been increasingly active in regulating noncompetes and imposing minimum requirements that must be met before a court even reaches the question of whether the specific restrictions in a noncompete are enforceable. These requirements serve as barriers to entry – if they are not met, the noncompete will be deemed invalid on its face, regardless of the reasonableness of its specific restrictions.
Below is a non-exhaustive discussion of some conditions necessary for noncompetes to be enforceable in certain states.
Link to Minimum Compensation Minimum Compensation
Numerous state laws require employees to receive minimum salaries or annual compensation to be bound by a noncompete agreement. The minimum compensation levels vary widely, and they often change over time. On the high end, the District of Columbia currently requires employees to earn at least $162,164 per year (more for certain medical specialists) for a noncompete to be enforceable against them. On the low end, New Hampshire prohibits noncompetes for employees who earn 200% or less of the federal minimum wage. Massachusetts prohibits noncompetes for employees who are classified as nonexempt under the Fair Labor Standards Act.
Numerous other states have minimum annual compensation requirements that fall somewhere between those of New Hampshire and the District of Columbia. Note that meeting the applicable compensation requirement does not ensure that a noncompete will be enforceable. The agreement still must be “reasonable,” as determined under applicable state law. However, failing to meet the compensation requirement means that the noncompete is automatically unenforceable, regardless of its terms.
Link to Notice and Review Periods Notice and Review Periods
Many states also require employees to receive a written notice and/or a certain amount of time to review a noncompete for it to be enforceable. An illustrative, but nonexhaustive, list of these states follows:
- Colorado: The employer must provide the employee with a separate written notice directing the employee to the provisions of the noncompete and providing a period of time for the employee to review the noncompete. The required period differs for current and prospective employees.
- Illinois: The employer must advise the employee to consult an attorney before signing a noncompete and provide the employee at least 14 days to review the agreement.
- Oregon: The employer must provide the terms of the noncompete to new employees at least two weeks before they begin working
- Massachusetts: For new employees, the employer must provide the noncompete to the employee at least 10 business days before employment begins. For existing employees, the employer must give the employee at least 10 business days to review the agreement.
Link to Timing of Signature Timing of Signature
In seeming contrast to states that require disclosure of noncompetes well before employment begins, Alabama requires that a noncompete be signed only after an employee has begun work. If an employee in Alabama signs a noncompete prior to the first day of employment as part of a new-hire packet, the noncompete will be unenforceable. There is some case law suggesting that the same result would apply to an employee in Louisiana.
Link to Final Word Final Word
The above are merely examples of requirements that certain states impose for noncompetes to be enforceable. Many other state-specific requirements exist.
The lesson for employers with employees in multiple states is that, as much as an employer might desire uniformity, the same noncompete that is enforceable in one state may be dismissed on a technicality by a court in another state. If it is important to have an enforceable noncompete with a particular employee, reviewing the applicable state law before making the offer of employment is critical.