What Is Happening With Non-Compete Agreements?

What Is Happening With Non-Compete Agreements?

A stubborn myth is non-compete agreements are not enforceable in Texas. Nothing could be further from the truth.

New clients regularly tell me that the non-compete agreement they signed is not enforceable because Texas is a “right to work” state. Unfortunately, that means only you cannot be required to join a union as a condition of employment in Texas.  “Right to work” has nothing to do with whether a non-compete agreement can be enforced in Texas.

Even though a non-compete is considered a restraint in trade, Texas law allows parties to enter enforceable non-compete or non-solicitation agreements. The reason for this is that specific business interests—such as trade secrets or business goodwill—are considered interests worthy of protection from a departing employee for a determined period.   

However, attitudes towards non-compete agreements are changing. In recent years, some places passed laws barring companies from including non-compete agreements in employee contracts. For example, the District of Columbia passed such a law that took effect in March 2021.

President Biden recently issued an Executive Order on Promoting Competition in the American Economy.  A part of this Executive Order asks the Federal Trade Commission to use its regulatory authority to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.”

While this Executive Order does not change the law, it is important.  What makes it important is that the President is using his bully pulpit to complain about the use of non-compete agreements and how those impact employees. President Biden asks the FTC to consider acting to limit the use of non-competes in employment.

What does that mean for the future of non-competes? We don’t know. 

The FTC has the power to issue rules and regulations.  It seems unlikely the FTC will have rules or regulations that ban non-competes in all situations.  However, the FTC will look at whether non-competes are overused or used so in a way that unfairly limits a workers’ ability to move from job to job.

The FTC might distinguish between low-wage workers who do not routinely work with highly confidential information and senior-level executives who know the company’s trade secrets and confidential strategies.  That distinction would make sense. If the FTC does act, there might be litigation over the scope of the FTC’s rule-making authority.

Congress is also looking at non-competes as well.  The Workforce Mobility Act of 2021 was introduced in the Senate and the House of Representatives.  It has bipartisan support.  If this law passed, it would limit the use of non-competes to situations involving a sale of a business or dissolution of a partnership. That would be a huge change in the law and would affect employers in all 50 states.

We don’t know what the future will be for non-competes.  However, President Biden made his thoughts clear that non-competes have the potential to harm employees with his Executive Order. What that means is that we must be paying attention to what the FTC does and what Congress does soon.

Basic Terms In A Severance Agreement

Basic Terms In A Severance Agreement

Laid off with a severance agreement to review?  What does all of that stuff in this agreement mean anyway?

Life is very stressful right now. COVID-19 and the shelter in place orders and the resulting economic meltdown have dealt many businesses severe—if not fatal—blows. For businesses trying to survive, making very tough decisions about laying off employees is part of survival.

It is brutal for the companies.  It is brutal for the affected employees and their families.  And it can cause confusion.  Often, a company will offer a severance agreement (also called a separation agreement) to an employee. For those who rarely look at separation agreements, this document can be confusing.

Most Severance Agreements Contain Basic Terms. These terms can include:  

  • The Money: Most of the time, the company will give the employee an amount of money and other benefits in exchange for the employee giving the employer a “release” of all possible claims. The other benefits can include things such as agreeing to pay insurance premiums for a period of time or agreeing to pay for outplacement.
  • The Release: One party agrees not to sue the other party.  Usually, the employee agrees to release any potential claims against the employer up to the date the employee signs the agreement. However, this can also be mutual where both the company and the employee agree not to sue the other party.
  • Confidentiality: Most agreements will require the employee to keep the terms of the agreement confidential. That means that the employee cannot disclose the terms of the package received to anyone. Usually, the employee may disclose to a spouse or immediate family, an attorney, a financial advisor and if otherwise required by law.
  • Re-employment rights: Some agreements will specify that the employee cannot reapply at the company if it accepts the separation payment. Other agreements specify that the employee has the right to reapply, but that some of the separation benefits may get offset if the employee is rehired.
  • Amount of time to sign/revocation rights: For employees over age 40, a company must include certain language in a separation agreement. The company must give the employee at least 21 days to consider the agreement (more time when a reduction in force). The company also has to tell the employee that the employee may have the agreement reviewed by an attorney and that, once the employee signs it, the employee may change his/her mind and revoke it for 7 days after signing.
  • Reminder of employee obligations: usually, the company will remind employees of their obligations to return company property and to continue to protect company confidential business information and trade secrets.

Like ice cream, separation or severance agreements come in many flavors and formats. Some are very simple. Some are over 10 pages long. Some are very complex.

What all have in common is that they involve important legal rights and obligations. So, every employee needs to know and understand what he or she is signing before actually signing it. If you are affected by a job termination and need help reviewing a separation agreement or severance agreement, contact us. We can help.