Restrictive Employment Agreements

Current law declares that a covenant not to compete that restricts the right of any person to receive compensation for performance of labor for any employer is void, with certain exceptions. The act adds exceptions for:

• A covenant not to compete governing a person who, at the time the covenant not to compete is entered into and at the time it is enforced, earns an amount of annualized cash compensation equivalent to or greater than the threshold amount for highly compensated workers, if the covenant not to compete is for the protection of trade secrets and is no broader than is reasonably necessary to protect the employer's legitimate interest in protecting trade secrets; and
• A covenant not to solicit customers governing a person who, at the time the covenant is entered into and at the time it is enforced, earns an amount of annualized cash compensation equivalent to or greater than sixty percent of the threshold amount for highly compensated workers if the nonsolicitation covenant is no broader than reasonably necessary to protect the employer's legitimate interest in protecting trade secrets.

Additionally, if the employer provides proper notice of the covenant not to compete to the worker or prospective worker, the following covenants are not prohibited:

• A provision providing for recovery of the expense of educating and training a worker where the training is distinct from normal, on-the-job training, the employer's recovery is limited to the reasonable costs of the training and decreases over the course of the two years subsequent to the training proportionately based on the number of months that have passed since the completion of the training, and recovery for the costs of the training would not violate federal law;
• A reasonable confidentiality provision relevant to the employer's business that does not prohibit disclosure of information that arises from the worker's general training, knowledge, skill, or experience, whether gained on the job or otherwise, information that is readily ascertainable to the public, or information that a worker otherwise has a right to disclose as legally protected conduct;
• A covenant for the purchase and sale of a business or the assets of a business; or
• A provision requiring the repayment of a scholarship provided to an individual working in an apprenticeship if the individual fails to comply with the conditions of the scholarship agreement.

The act prohibits an employer from entering into, presenting to a worker or prospective worker as a term of employment, or attempting to enforce any covenant not to compete that is void under the act. An employer who violates this provision is subject to a penalty of $5,000 for each worker or prospective worker, injunctive relief, and actual damages. In a private right of action, an employer may also be required to pay reasonable costs and attorney fees.

(Note: This summary applies to this bill as enacted.)