On Non-Compete Clauses and When They’re Necessary

Welcome to AccelPro Employment Law, where we provide expert interviews and coaching to accelerate your professional development. Today we’re featuring a conversation about noncompete clauses and how to address the concerns of both the employer and employee. Our guest is Nefertari Rigsby, the Executive Director, Human Resources and Employment Law Partner for Kaplan North America.

Noncompetes are a necessary, if also controversial, part of the modern employment landscape. Employees dislike them because they may hinder the ability to land a better job. But employers want them to protect their business interests. 

Rigsby previously worked in private practice in employment law and as in-house counsel and a strategic business partner for a Fortune 500 company. In this interview, she talks about best practices to craft noncompetes agreeable to both sides; the complications presented by different states having different laws; and tips for how Human Resources can best approach a former entry-level employee who now has a job requiring a noncompete. The supplemental materials and episode transcript are available below.

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Interview References:

• Nefertari Rigsby on LinkedIn

• 5:09 | California Business and Professions Code, Chapter 1 § 16600 (2008). 

• 5:11 | Unlawful and Voidable Contracts. North Dakota Century Code § 9-08-06.

• 5:12 | Oklahoma Statutes Title 15. Contracts, §15-219A. 

• 5:59 | Washington Noncompetition Covenants, § Chapter 49.62 RCW.

• 6:02 | Massachusetts Noncompetition Agreement Act, MGL c.149, § 24L.

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TRANSCRIPT

I. NECESSARY FOR AN EMPLOYER, A HINDRANCE FOR AN EMPLOYEE

Matt Crossman, Host: Let’s start with defining the terms that we’re going to talk about. What is a noncompete agreement? When are they not allowed, and what can they cover? 

Nefertari Rigsby: So in the most basic way of defining it, a noncompete essentially restricts an employee on where they can go to work and what they can do for another employer.

And the general standard is noncompete agreements cannot be over broad. What does that mean? They can’t be over broad in time. So you can’t have a noncompete with an employee forever. Typically the max amount of time is two years. And they can’t be over broad in geographic scope, but that has taken on quite a different change now that we have a virtual workforce, and geography is less of a concern in many instances.

They are generally intended to protect the company’s information—trade secrets, proprietary information, business strategies, things of that nature. So they’re intended to protect what the courts call a legitimate business interest. 

MC: Why do you like noncompetes? By that I mean, what value do they bring to the company that you think Human Resources executives might want to know and that lawyers on the other side might want to know as well?

NR: In the various roles that I’ve had in dealing with noncompetes, I do see the benefit of them from a company standpoint, but I also understand very much why employees themselves are not fans of them.

I litigated a number of noncompete cases prior to going in-house with companies, so I can see how things can take a turn when you’re really truly representing an employer who’s trying to protect their confidential or proprietary information, and it can be something as simple as, “I’ve got a senior sales leader who’s gone over to the competitor and they know our entire five-year plan.”

That can be an issue for an employer. But sometimes you’ll have lower-level employees who say, “Why can’t I go work here? I just have an entry-level job. It’s not as if I’m in the know about any sort of trade secrets or anything like that.” 

In those instances, I definitely see why employees would balk, in all honesty, because they’re receiving the noncompetes, but they’re not necessarily intended to protect a legitimate business interest. Instead, the noncompetes can be seen as a way to restrict their mobility and their ability to earn more pay and potentially better working conditions.

So I see both sides of the noncompetes—why they’re good and why they can also be a hindrance.

MC: You mentioned geography. That’s always a big issue in employment law, especially lately with so much virtual and remote work. What is happening geographically here? Is there one state that is leading the charge that other states should look to in terms of how to craft a noncompete agreement?

NR: The challenge that I have had in my various in-house counsel roles is dealing with employees located in a variety of jurisdictions. You have states on the polar opposite ends of the spectrum from each other. California, North Dakota and Oklahoma have outright bans on noncompetes. And then on the other end of the spectrum, I’m located in Florida, where there isn’t a ban on noncompetes. So that is a challenge. 

California is deemed to be a very employee-friendly state, whereas Florida, not so much. There’s a myriad of different variations across the country, whether it’s from case law or actual statutes. 

And one of the trends that I have been seeing is that a number of states have been putting in place a salary threshold. If you don’t make over a certain amount of money, you can’t be subject to a noncompete.

For instance, in Washington State, you need to make well over $100,000. In the District of Columbia, you need to make at least $150,000 to be subject to a noncompete. So for me, that creates a challenge because you can’t have a single agreement with a noncompete provision when you have employees all over the country.

So the question that I always ask is, “Where is the person located?” Because that will change the conversation and the guidance that I give to the internal clients.

MC: How do you find out that a former employee went to a competitor? Do you monitor?

NR: Well, this is the fun part. Social media tells a lot.