August 2021 Volume 3

OPERATIONS & MANAGEMENT

and while not decided by statute or the state Supreme Court, some Pennsylvania lower courts have instructed that the facts surrounding the termination impact whether the contract is enforceable. In other words, as an employer with this standard, you can’t terminate an employee for what is seen as no reason and then try to enforce a non-compete. So, assuming you get through all these threshold issues, what about the specifics? You need to look at both geographic and time restrictions. In terms of time, in states that enforce/allow non- competes, a one-year post-employment restriction is often seen as reasonable. Some states say up to two years can be presumptively reasonable, at least in certain circumstances (e.g. Florida). Geography is where companies seem to run into the most issues, especially as they do business across the U.S. and the world. Unfortunately, there is no real “rule of thumb” here; it depends on the job and where the individual worked. Many states do allow a customer restriction to take the place of a geographic one. I’m guessing that, by this point, a common reaction may be -- I’ll just make my non-compete as broad as possible and we can deal with any modifications if and when necessary. I get that, but again, not all states allow for this approach. Some states will not allow any modification. In other words, if you wrote the agreement and any part of it is determined by the court to be overbroad/overly restrictive, the entire agreement will be deemed to be unenforceable - not just the offending provision. Other states “blue pencil.” This is a mechanism whereby a court can strike certain pieces of your contract that are overly broad for whatever reason. This sounds promising, but your contract has to have been written in a way that pieces can be struck, and the intent remains. Many are not. The most employer-friendly states allow for reasonable modification, i.e., a court can rewrite an overly broad provision to make it enforceable. So, we are back to my initial point: which state law applies? Given all these potential issues, the most significant result of President Biden’s order could be that there is a centralized response to these agreements. I know I’ll be watching. ■

Next you have to consider whether the state forbids your employee from entering a non-compete, e.g., California, or whether the state allows them but only for certain more highly-compensated employees, e.g., Washington, which permits enforcement when the employee makes more than $100k (annualized). Assuming you have employees, who can be subject to a non- compete, then you have to think about consideration, i.e., what is the employee getting in exchange for his/her commitments here. Some states (e.g., Ohio) allow that even continuing at-will employment is consideration for a non-compete. So, in Ohio, from a “legal/ enforcement” perspective, you could have that employee sign the non-compete before hire, or anytime during employment. The real challenge may be more practical, e.g., if I am already working for you, and there is no new money, benefits, etc. to entice me to sign, why should I? And then, as the employer, what are you going to do if he/she refuses to sign -- terminate that employee? It’s an option (assuming you asked him/her to sign a legitimate agreement), but (a) you can’t pick and choose here or you face other potential issues; (b) you lose employees; and (c) I have seen some wrongful termination in violation of public policy arguments in this situation. Admittedly, these kinds of claims have more gravitas in those states that are more hostile or completely hostile to non-competes, but they are out there. Other states (e.g., Illinois) say continuing employment can be enough, but only if it continues for some period of time. Generally, Illinois courts are looking for two years of continuing at-will employment before finding ample consideration for the non- compete. So, the employer either has to decide to take the risk that an employee will stay 2+ years or offer some additional consideration at the outset. And there is no bright line as to what that additional consideration must be. Still others, e.g., Washington, require that the contract be presented at the time the employment offer is accepted, unless the contract is accompanied by changes to the employee’s compensation. Washington also has specific statutory rules as to compensation (i.e., continuing salary) required to enforce a non-compete in the employee is terminated due to a layoff. And speaking of leaving, there also are some states that only will enforce a non-compete if the employee voluntarily leaves or is terminated for some unspecified cause standard. For example,

Johanna Fabrizio Parker is a partner in Benesch's labor and employment group. Her practice involves representing and counseling management clients in a wide range of complex employment matters, including claims of discrimination, harassment, and retaliation brought under federal and state law, as well as wage and hour claims, and matters involving noncompetition agreements and trade secrets. She can be reached at jparker@beneschlaw.com.

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