38 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 39 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C Federal and State Legislative and Regulatory Developments in Restrictive Covenant Law The restrictive covenant arena saw many important developments in 2023, and 2024 will likely bring even more changes. First, the list of states that took steps to ban or limit the use of post-employment restrictive covenants has continued to grow. The federal government also began the process of enacting a rule that would prohibit most non-compete agreements between employees and employers. Second, several courts have become increasingly less likely to reform and enforce restrictive covenants that are broader than necessary to protect an employer’s legitimate business interests, and indeed, certain courts have more frequently declined to enforce overbroad restrictive covenants in their entirety rather than reform or “blue pencil” them. New Legislation In January 2023, the Federal Trade Commission (“FTC”) proposed a new rule that would prohibit most noncompete agreements between employers and employees. A final FTC vote on the rule is currently expected in April 2024 and, if passed, legal challenges to the FTC’s authority to enact such a rule are likely to follow. Also on the federal level, see below for a discussion on the National Labor Relations Board’s recent actions on restrictive covenants. On the state level, several new laws took effect in 2023 or at the outset of 2024: ■ Effective July 1, 2023, Minnesota became the first state in over 100 years to ban most post-employment non-competition agreements, joining California, North Dakota, and Oklahoma’s similar long-standing bans. See MINN. STAT. ANN. § 181.988. Minnesota’s statute expressly exempts from its coverage non-solicitation agreements and non-competition agreements between the buyer and seller of a business and those entered into in anticipation of dissolution of a partnership, LLC, or corporation. ■ In California, two new bills, AB 1076 and SB 699, which expand the consequences of California’s policy against restrictive covenants, took effect on January 1, 2024. AB 1076 renders unlawful – rather than merely void, as was previously the case – contracts that restrain any individual from engaging in a lawful profession, trade, or business, including (with few exceptions) post-employment non-compete and customer non-solicitation agreements. The law also required employers before February 14, 2024 to provide written notification to certain current and former employees that existing postemployment non-compete agreements are void. In addition, pursuant to SB 699, employees now have a private right of action against employers who enter into or seek to enforce unlawful restrictive covenants. ■ Missouri enacted a statute that took effect on August 28, 2023 that presumes an employee nonsolicitation agreement between a business entity and its owner to be enforceable if it is “reasonable” and Employment John Barry Head New York john.barry@weil.com E M P
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