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Noncompetes / Restrictive Covenants

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Don’t Miss California’s New Noncompete Notice Requirement (Deadline 2/14/24): Review Equity Award Agreements + Other Employment-Related Contracts ASAP to Avoid Costly Penalties

By , , and 4 Mins Read

As many readers likely know, last fall California doubled-down on the state’s hostility to noncompete agreements. Assembly Bill 1076 codified the landmark 2008 Edward v. Arthur Andersen decision that invalidated all employment noncompetes, including narrowly tailored ones, unless they satisfy a statutory exception.AB 1076 also added new Business & Professions Code §16600.1, requiring California employers to notify current (and certain former) employees that any noncompete agreement or clause to which they may be subject is void (unless it falls within one of…

Why US Employers Should Review Noncompetes in Equity Award Agreements

By 2 Mins Read

We are pleased to share a recent LegalDive article, “Why companies should review noncompetes in equity award agreements,” with quotes from Barbara Klementz. Given increased government scrutiny, employers need to be mindful of the time periods noncompetes cover and review state-specific requirements. In the light of the sharp focus the federal government and a growing number of states have placed on noncompetes, many employers have reexamined their use of that type of contractual clause in…

Reevaluating Restrictive Covenants in Equity Award Agreements

By 1 Min Read

Given recent developments and trends in the United States relating to restricted covenants (especially non-competes), companies should take another look at any restrictive covenants included in equity award agreements. In the past, companies rarely tailored restrictive covenants in equity award agreements to each jurisdiction (US states or countries outside the United States). Now, with so many new restrictions in the United States, it is more typical for companies to tailor the restrictive covenants for compliance…

I make employees sign noncompetes. Should I panic due to the proposed FTC rule?

By 3 Mins Read

The short answer is “no.” Typically the enforceability of non-compete clauses has been subject to state law and more recently, many states have imposed limitations on the enforceability of non-competes. Some states, like California, North Dakota and Oklahoma, ban them entirely. However, the Federal Trade Commission (“FTC”) on January 5, 2023 issued a proposed rule that would significantly restrict the use of non-compete clauses between employers and employees as a matter of federal law. The…

Should Your Global Equity Plan Include Recharge Arrangements?

By 1 Min Read

Global equity award programs can be costly to the US parent corporation. One strategy to offset some of this expense can be to use recharge arrangements to transfer some of the cost to the local entities that award holders are employed by. This can produce a tax benefit at the local level that would not otherwise be available to the US parent. To consider if recharge arrangements should be included in your global equity plan,…

Restrictive Covenants and Equity Awards: Match Made in Heaven or Headed for Divorce?

By 8 Mins Read

A sizeable number of companies include restrictive covenants in their equity award agreements, such as non-compete, non-solicitation, confidentiality and/or non-disparagement provisions. If a grantee violates the provisions, companies can forfeit the award (if still outstanding at the time of the violation), claw back any shares or proceeds related to the shares (i.e., sale proceeds and dividends) or seek an injunction to cease the employee’s violation of the applicable covenant. The restrictive covenants typically are not tailored by jurisdiction but, rather, of a “one-size-fits-all” variety. As a result, companies should not be surprised to learn that the covenants rarely are enforceable as written, especially the non-compete and non-solicitation covenants.[1]

I think it is fairly well-known that non-competes are generally not enforceable in California, except in a few narrow circumstances (such as a selling shareholder or partnership dissolution). The same cannot be said for other jurisdictions (whether other U.S. states or non-U.S. countries), but it is very unlikely that the “one-size-fits-all” approach will work.