April 19, 2021

Volume XI, Number 109

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April 16, 2021

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Bans on Employee Restrictive Covenants are Gaining Momentum – Take Steps Now to Protect Proprietary Information

A number of states and municipalities have passed laws restricting or banning noncompetes in recent years.  For instance, employee noncompetes are prohibited in California and, in Washington, D.C., were banned as of March 15, 2021.  Other states currently have legislation pending that would restrict or prohibit forms of noncompetes as well.

In addition, the federal government will likely push for prohibitions against noncompetes in the next year. After President Biden’s election, he released his  “Plan for Strengthening Worker Organizing, Collective Bargaining, and Unions” (the “Plan”), which seeks to “eliminate noncompete clauses and no-poaching agreements that hinder the ability of employees to seek higher wages, better benefits, and working conditions by changing employers.” 

Looking ahead, the ability to restrict former employees from competing or soliciting employees will likely be limited in some manner in many (if not most) states, so companies must plan now before the limitations take effect.  Here are three things an employer can do now to protect the company against rogue employees.

  1. Employees should sign narrowly tailored noncompetition and nonsolicitation covenants NOW.  While restrictions vary by state, new laws voiding noncompetes typically do not apply retroactively to agreements already in effect.

  2. Have employees sign confidentiality covenants with provisions for an award of attorneys’ fees. Even states that do not recognize noncompetition covenants will enforce confidentiality contracts made to protect a company’s proprietary information. 

  3. Institute and enforce procedures to ensure employees do not leave with company proprietary information.  Processes that ensure employees have not downloaded proprietary information will help to immediately stop employees from poaching customers.

Given the trend to curb noncompetition covenants, steps taken now can help companies protect customer relationships even in the absence of enforceable noncompetition provisions.

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© 2021 Foley & Lardner LLPNational Law Review, Volume XI, Number 95
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About this Author

Rachel Powitzky Steely Employment Lawyer Foley Gardere Law Firm
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Rachel Powitzky Steely is recognized as one of the foremost female trial lawyers in Texas specializing in employment law. She was selected as one of the top 20 female trial lawyers by Texas Lawyer Magazine and the only labor and employment attorney to receive the honor. Rachel has been recognized as a Texas “Super Lawyer” for more than ten years in the specialty of employment litigation. She was also a finalist for the Houston Business Journal's Outstanding Business Leader in Professional Services and was selected for Who's Who in Energy. She is a former student investigator for...

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