Many employees enter into employment contracts with language that restricts them from moving on to jobs with their employers’ competitors. These clauses, known as non-competition or non-compete agreements, are common and usually expressly governed by the laws of a particular jurisdiction, also referred to as “choice of law” provisions.
Because different states take different perspectives on the enforceability of non-compete agreements, a choice of law provision often makes or breaks a case involving an employment relationship. Some 19 states have statutes governing non-compete agreements, with a wide range of views. For example:
- California and North Dakota have legislation that nearly prohibits non-compete agreements.
- Florida presumes non-competition contracts are valid and that a six-month restriction on competition is reasonable.
- Oregon presumes non-competes are invalid restraints on trade.
- Michigan gives the courts the power to determine the reasonableness of non-competition restrictions.
- New York will not uphold a non-compete agreement if the employee was terminated without cause.
A recent Pennsylvania case (Synthes v. Peter Harrison, reported on Forbes.com) underscores the impact a choice of law provision can make. In that case, the employer sought an injunction to enforce a non-compete against a former employee who had worked in California. The contract provided that the employment relationship and non-competition clause would “be governed by Pennsylvania law applicable to contracts entered into and performed in Pennsylvania.” The Pennsylvania trial court held that California law applied because the contract was not performed in Pennsylvania, but the appellate court reversed, finding that Pennsylvania law did apply. The reversal was significant, for had California law applied the non-compete would likely have been held invalid.
The presence of a non-competition provision in an employment contract and applicable choice of law language, as well as when and how the employee is asked to agree to the provision are important considerations in related employment and commercial litigation. If you are an employee or employer and have questions about an existing or proposed non-compete agreement, contact an attorney in Sommers Schwartz’s Employment Litigation Group today – we’re here to help.