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Drawing on nearly 20 years of experience, Todd Hanchett represents employers in high-stakes litigation and traditional labor law matters. As a seasoned litigator, he regularly represents clients before state and federal courts around the country, as well as in labor arbitrations and before the National Labor Relations Board. In addition to employment matters, Todd specializes in litigating and trying cases involving employee non-competition, non-solicitation, and confidentiality agreements, as well as tortious interference claims. His practice focuses particularly on companies in the medical device, senior housing, health care and hospitality industries.

Click here for Todd Hanchett’s full bio.
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The recent federal court ruling that struck down the Federal Trade Commission’s (FTC) rule banning non-compete agreements has given employers some relief, but it doesn’t mean non-competes are no longer under scrutiny. While the ruling prevents the FTC’s proposed ban from taking effect, state legislatures across the country have been tightening restrictions or imposing outright bans on non-compete agreements over the past few years. To avoid potential legal pitfalls, employers need to stay up-to-date on these evolving state laws.

We’ve prepared a full rundown of these changes, their implications, and what they mean for your business here.

On Tuesday, August 20, a federal judge in Texas shot down the Federal Trade Commission’s rule banning noncompete agreements (“the Rule”) that was set to take effect September 4. This means that the FTC cannot enforce the Rule. As a result, enforceable non-competes currently in place remain enforceable, and businesses and workers are free to enter into new non-competes (subject to applicable state law restrictions). 

Earlier this summer, on June 3, the Court previewed its conclusion that the Rule was unlawful because the FTC exceeded its statutory authority in implementing the Rule, and that the Rule is arbitrary and capricious. But employers have been anxiously awaiting Tuesday’s ruling on the merits, uncertain about the future of non-competes.

On Tuesday, the Court affirmed its decision that the Rule is unlawful. The Court specifically held the FTC lacked the authority to create substantive rules regarding unfair methods of competition. The Court emphasized that agencies like the FTC are merely “creatures of Congress” and have “no power to act . . . unless and until Congress confers power upon [them].” In this situation, Congress did not empower the FTC to act to ban noncompetition agreements nationwide.

The Court also held that the FTC failed to justify the Rule’s nearly universal breadth. If it had gone into effect, the Rule would have retroactively invalidated over 30 million employment contracts and preempted the laws of 46 states.  The Court described the Rule as “unreasonably overbroad without a reasonable explanation” because it imposed “a one-size-fits-all approach with no end date” and because the FTC failed to consider less disruptive alternatives. The Court ultimately found that the FTC’s lack of evidence as to why it chose to impose such a sweeping prohibition—that prohibits entering or enforcing virtually all non-competes—instead of targeting specific, harmful non-competes, rendered the Rule arbitrary and capricious.  As a result, the Court found that the Rule was unlawful.

The FTC could appeal the ruling to the Fifth Circuit Court of Appeals.  However, it is possible—if not likely—that the Fifth Circuit would agree with the Texas court and affirm the decision, as would the Supreme Court, if the FTC ever pursued the case to the nation’s highest court.

Even if the FTC abandons its effort to ban non-competes on a national level, states around the country will continue the assault.  Several states have recently passed laws banning or restricting the use of non-competes, and others are likely to follow. Congress could get involved as well. A separate article discussing the fate of non-compete agreements is forthcoming. Stay tuned. But for now, rest assured that non-competition agreements are still permitted by federal law.

Related Post:

Navigating the Changing Landscape of Non-Compete Agreements: What Employers Need to Know (8/30/2024).

The recent federal court ruling that struck down the Federal Trade Commission’s (FTC) rule banning non-compete agreements has given employers some relief, but it doesn’t mean non-competes are no longer under scrutiny. While the ruling prevents the FTC’s proposed ban from taking effect, state legislatures across the country have been tightening restrictions or imposing outright bans on non-compete agreements over the past few years. To avoid potential legal pitfalls, employers need to stay up-to-date on these evolving state laws.

We’ve prepared a full rundown of these changes, their implications, and what they mean for your business.

Minneapolis

Minnesota’s new law will take effect on July 1, 2023, prohibiting all noncompete agreements, except those entered during the sale of a business or in anticipation of the dissolution of a business. The law will not apply retroactively to void existing noncompete agreements and will not prohibit the continued use of non-solicitation, confidentiality, trade secret, or nondisclosure agreements

A renewed effort to ban noncompete agreements prevailed at the Minnesota legislature on Wednesday.  The new law will render void and unenforceable all future covenants not to compete, unless they meet certain limited criteria.  While this effort failed at last year’s legislative session, the new law has passed in the House and Senate and is headed to Governor Tim Walz for his signature, which he is almost certain to provide.  The law will take effect July 1, 2023, and will apply to all contracts and agreements entered into from that date forward.  The law will materially impact Minnesota employers’ ability to protect their confidential business information, trade secrets, and other intellectual property rights.

Noncompete agreements have historically been utilized to provide employers a way to protect trade secrets and proprietary information.  Until now, Minnesota did not have a statute directly restricting noncompetes, though they were generally disfavored under the law and only enforced by Minnesota state and federal courts to the extent necessary to protect legitimate business interests over confidential information and goodwill or relationships.  However, Minnesota’s move follows the Federal Trade Commission’s (FTC) recently proposed rule that would essentially ban noncompete clauses across the nation, as well as other states, like California, North Dakota, and Oklahoma which have already enacted statutes that render noncompete clauses void for almost all employees with very few exceptions.  Many states (Colorado, Illinois, Iowa, Kentucky, Maine, Maryland, New Hampshire, Oregon, Rhode Island, Virginia, and Washington) have also acted short of an outright ban to restrict noncompetes, including by banning noncompete agreements for certain professions, low-wage workers or workers below a certain income threshold. 

Minnesota’s New Law Will Ban Most (But Not All) Noncompete Agreements

Minnesota’s new noncompete law will prohibit almost all noncompete agreements entered into with employees and independent contractors regardless of a person’s income, with the following limitations:

  • The law does not apply retroactively and will not impact existing noncompete agreements.  The law will only ban noncompete agreements entered on or after July 1, 2023.  This is unlike the FTC effort to ban noncompetes, which, as proposed, would have a retroactive effect, and would require that employers notify all employees of the rescission of noncompete agreements that were signed prior to the effective date.    Existing noncompete agreements are expected to continue to be evaluated by Minnesota courts based on the established body of case law providing for enforcement of covenants not to compete that are reasonable in scope.
  • The law bans all “covenants not to compete” which includes any agreement between an employee and employer that restricts the employee, after termination of the employment, from performing:
    (1) work for another employer for a specified period of time;
    (2) work in a specified geographical area; or
    (3) work for another employer in a capacity that is similar to the employee’s work for the employer that is party to the agreement.
  • The law does not ban nondisclosure, confidentiality, trade secret, or non-solicitation agreements, and expressly excludes agreements with employees restricting their ability to use client or contact lists or restricting the solicitation of customers after employment ends.  While likely not as effective as noncompete agreements, the ability to continue to include post-employment restrictions on solicitation of clients/customers and disclosure of confidential information is a critical victory for Minnesota employers.  This is particularly true where there is a trend in other states to ban these types of post-employment restrictions.
  • The law does not apply to the sale of a business in which a noncompete agreement is reached between the buyer and seller of the business and is intended to prohibit the seller from carrying on a similar business within a reasonable geographic area for a reasonable period of time.
  • The law does not apply in anticipation of the dissolution of a business in which the partners, members, or shareholders of the dissolving partnership, LLC, or corporation agree that all or any number of the partners, members, or shareholders will not carry on a similar business in a reasonable geographic area where the business operated.

Of note, the law does not render an entire agreement unenforceable if it otherwise contains a void or unenforceable covenant not to compete.  Only the impermissible covenant is rendered void.  In addition, the law provides that a court may award an employee enforcing rights under this law his or her reasonable attorney fees.

Despite being touted as broadly banning noncompete agreements, the law leaves a number of questions unanswered.  Notably, it does not include any restrictions on how long permissible noncompete agreements can last, or require that the noncompete include a territorial restriction, or a scope of activity restriction.  These concepts have been addressed by Minnesota courts, but it is unclear if this existing body of law will be applied to enforce noncompete agreements under Minnesota’s law.  The law also fails to address (1) whether noncompete agreements that are otherwise banned may be enforceable if they are designed to protect trade secrets and confidential information, (2) whether an employer may prohibit a former employee from performing unsolicited work for a former client; and (3) whether the sale of business exception allows a buyer to prohibit an individual seller from accepting employment with a competitor.  These questions will likely need to be answered by the courts in the coming years.

Next Steps

There is no need to wait until July 1.  Minnesota employers (including multi-state employers with Minnesota employees) should immediately take action to ensure that they have protections in place for their confidential information, customer relationships, and other goodwill in the form of non-solicitation, confidentiality, and nondisclosure agreements in Minnesota employment agreements.  Post-employment non-solicitation covenants that prohibit the employee from stealing customers that they solicited on behalf of the employer will be particularly crucial to protect customer relationships that the employee was compensated to cultivate on the employer’s behalf.  Employers may also want to reevaluate employee access to trade secrets and consider different strategies to ensure that employees have access only to information that is truly necessary for performing their jobs and ultimately mitigate the risk of confidential information leaking out the door when employees leave for competitors.   

Employers should also review their current employee population to determine the work location and primary residence of their employees and identify which employees are subject to noncompete agreements and review the choice of law provisions contained in their employment agreements.  Employers should additionally review all template agreements and ensure that noncompete agreements are removed or otherwise revised, and choice of law provisions are revised to account for these impending changes to Minnesota law.

Finally, employers should continue to be mindful of the National Labor Relations Board’s (NLRB) recent decision in McLaren Macomb and subsequent guidance issued by the General Counsel of the NLRB, which reinstate a limit on the confidentiality, nondisclosure, and non-disparagement clauses that employers may include in severance agreements with most of their lower-level employees.  Although the NLRB is focused on confidentiality and non-disparagement provisions contained in severance agreements, the guidance may also apply to standard employee agreements containing noncompete or confidentiality provisions that are entered into at the start of or during employment. 

We will continue to monitor developments in Minnesota and provide an update if the bill is signed into law. In the meantime, if you have questions about Minnesota’s new law, and its impact on your business, contact Emily C. Atmore, a Minnesota-based Stoel Rives LLP employment attorney.

The General Counsel of the National Labor Relations Board (NLRB), Jennifer A. Abruzzo, issued guidance on March 22, 2023, about the NLRB’s McLaren Macomb, 372 NLRB No. 58, decision from February 21, 2023, which reinstated a limit on the confidentiality, non-disclosure, and non-disparagement clauses that employers may include in severance agreements with most of their lower-level employees.[1]  While not law, the General Counsel’s guidance is intended to address the uncertainty among employers regarding what language is deemed acceptable to include in severance agreements and what language may create liability under the National Labor Relations Act (NLRA) following McLaren Macomb.[2]

The McLaren Macomb decision specifically held that employers may not condition severance on the employee’s waiver of rights protected by the NLRA and that agreements between employers and employees that restrict employees from engaging in activity protected by the NLRA or from filing unfair labor practice (ULP) charges with the NLRB, helping other employees in doing so, or assisting during the Agency’s investigatory process are unlawful. The NLRB observed that the employer’s offer is itself an attempt to deter employees from exercising their statutory rights, at a time when employees may feel they must give up their rights in order to get the benefits provided in the agreement. It also provided that the conduct of an employer is irrelevant to assessing the lawfulness of a severance agreement, and the plain language of the severance agreement alone can constitute a violation.  While the Maclaren Macomb decision has been described as a return to the standard applied in earlier cases, many speculate that it indicates that the NLRB intends to take a broader view of how severance agreements infringe on employees’ rights under Section 7 of the NLRA.

Continue Reading NLRB Returns to Longstanding Position Limiting Use of Confidentiality, Non-Disclosure, and Non-Disparagement Clauses in Employee Severance Agreements

On February 7, 2022, the Oregon Health Authority (“OHA”) announced that it would lift the general state-wide indoor mask requirement no later than March 31, 2022.  Per the OHA, the mask requirement for schools will also lifted by March 31, in coordination with the Oregon Department of Education (“ODE”).

The OHA is basing its decision on what it anticipates will be a sharp decrease in hospitalization rates for COVID-19 patients by the end of March. For now, however, the OHA will maintain the indoor mask requirement as COVID-19 hospitalizations reach their peak and Oregon’s health care system continues to feel the strain of the ongoing pandemic.

Although the OHA’s update provides helpful information about the fate of the mask requirement, several questions remain unanswered. These include:

  • Whether the OHA will wait until March 31 to withdraw the indoor mask mandate, or will do so earlier;
  • Whether mask requirements will continue in effect in locations that present a higher risk of COVID-19 transmissions, for example, in nursing homes or in health care or transportation-related facilities;
  • Whether local governments like cities, counties and school districts will continue to require masks even after the OHA no longer requires them.

The OHA specifically noted that once the indoor mask requirement is lifted, employers and businesses may maintain their own mask requirements.

We will continue to monitor the situation and keep you apprised about what the law requires. In the meantime, please feel free to reach out to any of our L&E attorneys with questions.

Last week, Governor Kate Brown announced that the State of Oregon would require that all health care workers be fully vaccinated against COVID-19 unless they could prove they were entitled to a religious or medical exception.  The Oregon Health Authority (“OHA”) just released its administrative rule implementing the Governor’s announcement: effective October 18, 2021, health care workers and staff working in a health care setting must present documentation that they are fully vaccinated or that they are entitled to an exception.  Medical and religious exemptions must be documented on specific forms prescribed by the OHA, available here.  After that date, health care entities may not employ, contract with, or accept the volunteer services of an individual who cannot present such documentation.  Below is a summary of additional details about the rule’s requirements.

Broad Applicability.  The mandatory vaccine rule applies to all individuals, “paid or unpaid, working, learning, studying, assisting, observing or volunteering in a healthcare setting.”  “Healthcare setting” is broadly defined to include “any place where health care, including physical or behavioral health care is delivered.”  In addition to traditional medical facilities, the definition also includes providers of “alternative medicine such as acupuncture, homeopathy, [and] naturopathy” services.

Proof of Fully Vaccinated Status.  As with prior OHA and Oregon Occupational Health and Safety rules, “fully vaccinated” means that at least 14 days have passed since the individual received the second dose of a two-dose vaccine (Pfizer/Moderna) or the first dose of a single-dose vaccine (Johnson & Johnson).  Likewise, “proof of vaccination” means documentation issued by a government entity or health care provider that includes the worker’s name, date of birth, type of vaccine, date(s) the vaccine was given, and the name or location of the site where the vaccine was administered.  A COVID-19 vaccination card or digital photo or printout from the OHA’s immunization registry satisfies the rule’s requirements.

Religious and Medical Exceptions.  The rule recognizes exceptions to the mandatory vaccine requirement on religious or medical grounds.  Health care workers who seek a religious exception must corroborate the request on a form prescribed by the OHA that is signed by the worker and that includes “a statement describing the way in which the vaccination requirement conflicts with the religious observance, practice, or belief of the individual.”

Similarly, health care workers who seek a medical exception must submit an OHA-approved form that is “signed by a medical provider, who is not the individual seeking the exception” and that “certif[ies] that the individual has a physical or mental impairment that limits the individual’s ability to receive a COVID-19 vaccination based on a specified medical diagnosis, and that specifies whether the impairment is temporary in nature or permanent.”  Copies of the forms are available on the OHA’s website.

The rule provides little guidance about the status of individuals who establish that they are entitled to an exception.  It simply states that health care entities “must take reasonable steps to ensure that unvaccinated healthcare providers and healthcare staff are protected from contracting and spreading COVID-19.”  Realistically, this may mean that employees who can establish entitlement to a religious or medical exception cannot work in direct patient-care roles and must be reassigned or placed on leave.

Recordkeeping Requirements.  Health care entities must maintain documentation of workers’ fully vaccinated status and/or their documentation regarding religious and medical exceptions for at least two years, and must provide such documentation to the OHA upon request.

Additional Employer-Imposed Requirements.  The rule makes clear that employers are free to impose additional rules regarding COVID 19 vaccine requirements, including requiring compliance prior to October 18, 2021, and requiring additional or booster doses of the vaccine.

Separately, the Oregon Employment Department just announced that employees who are terminated for failure to comply with a vaccine mandate may not be able to collect unemployment benefits.

If you have questions about the new rule, or anything else regarding the ever-shifting COVID 19 landscape in the workplace, please feel free to contact any of our labor and employment attorneys.

On August 19, 2021, just two weeks after announcing that all Oregon health care workers must either be fully vaccinated or test weekly for COVID-19, which we blogged about here, Governor Brown announced that vaccinations will be mandatory for health care workers starting October 18, 2021, assuming the vaccines have full FDA approval by then.  There will not be a testing alternative.  Employers may, however, need to make accommodations for employees with disabilities or sincerely-held religious beliefs that prevent them from receiving the vaccine.

Prior to October 18 and full FDA approval, the Oregon Health Authority rules requiring health care workers to either show proof of vaccination or test weekly remain in effect.

If you have any questions about workplace vaccination policies or exemptions, please contact us.

Over the last several years, the Oregon Legislature has whittled away employers’ ability to enforce employee non-competition agreements (see our posts from 2007, 2015). Senate Bill 169, which Governor Brown signed into law on May 21, 2021, further limits an employer’s ability to impose non-competition obligations on employees. Effective starting January 1, 2022, the statute will require:

  • A maximum 12-month duration for agreements entered on or after January 1, 2022. Current Oregon law provides that non-competition agreements could be enforced for up to 18 months post-termination. Existing employee non-competes are not affected by the shortened restriction period.
  • The employee must receive an annual gross salary at time of termination of at least $100,533, adjusted annually for inflation.

Existing requirements for non-competes will remain in effect, including:

  • The employer must inform the employee in a written employment offer received by the employee at least two weeks before the first day of employment that a non-competition agreement is required as a condition of employment, or the non-competition agreement must be entered into upon a “bona fide advancement” of the employee.
  • Within 30 days of the employee’s termination, the employer must provide the employee a signed, written copy of the employee’s non-competition agreement. (This requirement became effective January 1, 2020, so if it’s not already a part of your company’s termination checklist, be sure to add it now.)
  • The employee must qualify as “exempt,” and the employer must have a “protectable interest” as defined by the statute (for example, the employee has access to the company’s trade secrets, or other competitively sensitive or confidential business information).

Unless these requirements are met, the non-competition agreement is “void and unenforceable.” The current statute provides that a non-compliant agreement is “voidable,” not “void.”

Note that these requirements apply only to non-competition agreements connected to employment; they do not apply to covenants not to solicit employees or customers, nor do they apply to non-competition agreements outside of the employment setting. For example, agreements that prevent employees from “soliciting or transacting business” with the employer’s customers or agreements with the seller of a business fall outside the scope of the statute.

If you have any questions, feel free to contact any of our labor and employment attorneys.

Pursuant to Oregon Health Authority (OHA) guidance, employers in certain businesses must require employees, contractors, and volunteers to wear a mask, face covering, or face shield, unless an accommodation for people with disabilities or other exemption applies. On June 11, 2020, the OHA issued updated guidance explaining that face coverings are not required when eating/drinking or when in a non-public-facing location where six or more feet of distance can be maintained.

Businesses subject to this requirement are:

  • Grocery stores
  • Fitness-related organizations (gyms, fitness centers, dance studios, martial arts centers, etc.)
  • Personal services providers (barber shops, hair salons, esthetician practices, day spas, nail salons, tanning salons, tattoo parlors, etc.)
  • Pharmacies
  • Public transit agencies and providers
  • Restaurants, bars, breweries, brewpubs, wineries, tasting rooms, and distilleries
  • Retail stores
  • Ride sharing services

Employers must provide masks, face coverings, or face shields for employee use.  Such businesses must also develop and comply with policies and procedures that provide for accommodations for employees with disabilities and require employees to review those policies and procedures.  Here is our previous blog about accommodating disabled employees who may be unable to wear a face mask or covering.

In addition, businesses that require customers or visitors to wear face masks or coverings must develop a policy and post clear signs about the requirements.  The OHA guidance outlines requirements for such a policy.

Additional information for Oregon businesses about reopening is also available here.

On Thursday, May 7, 2020 – six weeks after Oregon Governor Brown announced a statewide “Stay Home” order – Governor Brown released details for Reopening Oregon over the coming weeks and months.  The Governor’s plan follows federal guidance and permits certain businesses to reopen in phases after specific public health prerequisites are met.

In the first phase of the plan, counties that satisfy those prerequisites may permit certain business activities starting on May 15.  Phase 1 activities include sit-down dining at restaurants and bars and personal care services.  Each phase is required to last at least 21 days to ensure that each health benchmark is met before further loosening restrictions in the next phase.

In her announcement, the Governor also issued guidance for various sectors of the state – the public, employers, outdoor recreation, restaurants & bars, retail stores, and personal services providers.  The state’s guidance for employers is summarized below; we provided more detail for many of these concepts in our own Ten Things to Consider in Getting Back to Work.

General Considerations

  • Know the signs of COVID-19 illness and have a plan for what to do if an employee develops symptoms at the workplace.
  • Follow state and federal guidelines to protect employee health and safety.
  • Promote social distancing at work.
  • Understand your obligations under state and federal leave laws.

Continue Reading Reopening Oregon: Governor Brown Releases Details and Guidance for Businesses