The Risks of Noncompetition Agreements for Remote Employees

2 min

More than two years into the pandemic, most employers are familiar with many of the challenges raised by engaging remote employees. However, one often overlooked issue is whether noncompetition agreements vetted for in-state workers are enforceable against remote, out-of-state employees.

The enforceability of noncompete and nonsolicit agreements varies wildly from state to state. In California, noncompete provisions are famously banned, while in Florida noncompete provisions are permitted if properly drafted. Even where states permit noncompetition agreements, there are state-specific nuances that make a broad noncompetition provision hard to roll out for all employees.

The law in this area is also rapidly changing. Some states have recently passed laws limiting or barring noncompete provisions or agreements, particularly for lower-level employees.

On January 1, 2022, a new Illinois law went into effect that barred employers from entering noncompetition agreements with employees initially earning less than $75,000 per year. That same law bars not-to-solicit covenants with any employee, unless that employee's earnings initially exceeded $45,000 per year. Employers are also prohibited from entering into covenants not to compete or solicit with employees who have been terminated for reasons related to COVID-19, unless properly compensated. Even for employees who don't fall into these exceptions, covenants not to compete or solicit are illegal unless (1) the employee receives adequate consideration (either working for two years for the employer or additional consideration), (2) the covenant is ancillary to a valid employment relationship, (3) the covenant is no greater than required for the protection of a legitimate business interest of the employer, (4) the covenant does not impose undue hardship on the employee, and (5) the covenant is not injurious to the public.

As in Oregon, Maryland, and Virginia, employers are restricted from entering into noncompetition agreements unless the employee's earnings are above a certain threshold.

Some employers might try to get around the issue with tailored choice-of-law provisions. However, those provisions might not be enforceable, depending on where an employee is located. For example, in California, employers are prohibited from requiring employees who live and work in California from agreeing to choice-of-law provisions outside of California.

Going forward, employers should take a closer look at where their remote employees are based, in order to make sure that any noncompetition agreements are compliant with local law, and should not hesitate to roll out new documents as needed.