The Legal Zone
The Legal Zone
Non-Compete Agreements Under Biden Administration
On this episode of The Legal Zone, managing attorney Regina Campbell, of The Campbell Law Group, PA, discusses all the important information of Non-Compete Agreements under the Biden Administration.
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I am Regina Campbell the legal zone and
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we're proud to bring you season one
0:05
episode four today we're going to talk
0:07
about non-compete agreements in the
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Biden age
0:10
this particular topic has a lot of
0:11
people a little bit nervous particular
0:13
employment and corporate lawyers and
0:16
business owners but rest assured the
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executive order does not mean that any
0:20
non-compete or non-solicitation for
0:22
similar type provisions are valid
0:24
it's basically an indication to the
0:26
federal agencies to look into the unfair
0:28
use of these type of agreements or
0:30
restrictive covenants and particularly
0:32
its effect that they may have on workers
0:33
mobility
0:34
so it's less likely even if something
0:36
were to come down the pipe it's more
0:37
likely to affect companies that are
0:39
larger in scale that have sort of
0:41
national workforce so to speak
0:43
and that use non-competes agreements
0:46
unnecessarily in order to keep employee
0:48
employees from be able to have options
0:50
to leave the company
0:52
it doesn't sound like although it's not
0:53
definitely not off the table that
0:54
there's likely to
0:56
affect any type of buy sell agreements
0:59
or purchase agreements between parties
1:01
and these type of restrictions that are
1:02
contained in them but once again even on
1:04
a state level these type of provisions
1:06
can be scrutinized as well if they're
1:08
not properly or terribly written to
1:10
protect the company's interest
1:12
that's something very specific that we
1:13
need to also look into and i'll be doing
1:15
another podcast on because that is a um
1:17
a very fact to tense analysis
1:19
and very important one because a lot of
1:22
these times these companies these
1:23
covenants non-competes and
1:24
non-solicitation are written rather
1:26
broadly
1:28
and they can be struck down or modified
1:30
if blue penciling is allowed
1:31
particularly in the state of Florida it
1:33
is although I always recommend that you
1:34
add a provision in your contract that
1:36
permits it in the event that
1:38
the geographic location or the
1:40
restrictions that prove to be
1:41
unenforceable or valid
1:43
so
1:44
what does this all mean it sounds all
1:46
kind of funny and very nuanced but
1:48
try to keep in mind and this is
1:49
something you should keep in mind also
1:51
um when you know talking to your lawyers
1:54
about drafting these type of provisions
1:56
explaining to them your actual business
1:57
interests where you might be going in
1:59
the future if you know
2:01
um
2:01
tailoring them to be a little bit
2:03
flexible to you know also to the
2:05
employee
2:06
ultimately if you have these type of
2:08
agreements in place and they're overly
2:10
restricted it might also keep you from
2:11
maybe attracting uh good employees as
2:14
well
2:15
so you want to strike a balance and
2:16
that's actually what the federal
2:18
government's trying to do in those
2:19
states also try to do as well trying to
2:21
strike a balance between protecting
2:22
employers rights legitimate business
2:25
interests which include maybe
2:27
confidential information they may have
2:28
acquired through their own sweat so to
2:30
speak and blood sweat and tears of you
2:33
know going door to door
2:34
or building relationships with our
2:36
customers
2:37
the specific network of vendors or
2:39
pricing that might be very distinct
2:41
especially in a highly competitive
2:42
industry where pricing can be very
2:44
competitive it could be margins of
2:45
percentages so it can make a very big
2:47
difference of knowing someone knows this
2:49
sensitive information about your company
2:51
can easily be used against you so every
2:53
state defines confidential information
2:55
and what is potentially protected
2:56
business interest
2:58
but particularly in the state of Florida
2:59
it's very similar also
3:01
you know as most other states but
3:02
they're looking at protecting something
3:04
that cannot be recreated in the public
3:06
in other words you can't just pick up
3:07
you can't google and find the
3:08
information there and properly compete
3:11
with somebody else it's something that's
3:13
obtained that's sensitive that's
3:15
obtained through again marketing efforts
3:18
sales efforts
3:19
goodwill building your reputation
3:21
whether it's a product or a service
3:23
so the more that you put into this and
3:24
the more you can define something that's
3:26
special and unique to your company the
3:28
more likely any one of these provisions
3:30
are to be upheld by a court okay
3:32
now the more you write these provisions
3:34
or these provisions can be seen as
3:36
overly restrictive on commerce or
3:38
competition that is also going to be the
3:40
other counter
3:42
you know counter balancing you know
3:43
factor that has to be taken to place
3:45
here protection of legitimate business
3:47
interests versus also competition and
3:49
creating sort of free market out there
3:51
in between you also have this is where
3:54
employees come in as well you know
3:56
there's a separate issue with buy sell
3:57
agreements and selling your business of
3:59
course uh but particularly in reference
4:02
to employees
4:03
the difficulty that a lot of companies
4:05
have is of course you train these
4:07
employees you put marketing money behind
4:10
things
4:11
you try different sales tactics you have
4:13
different processes methodologies that
4:14
might be very unique and sort of maybe
4:17
the key to your success
4:18
concern is the company your employees
4:20
are going to take that
4:22
all that learning that took you years
4:23
and all those potential thousands or
4:25
millions of dollars
4:26
to learn to build and they're just going
4:28
to turn around and take the information
4:30
and use it open up their own company and
4:32
use it against you basically
4:34
so
4:35
kind of going back to the you know to
4:36
the different factors and the balancing
4:38
act that the statutes in the federal
4:39
government are trying to
4:41
obtain so to speak is of course most
4:44
states with the exception of California
4:46
north Dakota and Oklahoma have some
4:48
variation of non-competing
4:49
un solicitation provisions or statutes
4:51
basically that protect this company that
4:53
might have spent that has good will
4:55
that has name recognition that might
4:57
have put this effort built something a
4:58
database that's very unique through
5:00
their own work and efforts or sweat
5:02
equity so to speak right through their
5:03
own sweat
5:04
um and
5:06
that might be protected
5:08
but over here if you have something that
5:09
you can google or easily obtain in a
5:11
public source so to speak in a public
5:12
database that's for sale it's less
5:14
likely to be protected and the employee
5:16
may have a right to compete they have a
5:18
right to leave your company and compete
5:19
against you
5:20
what wouldn't be fair is that they can
5:22
take information that's sensitive and
5:23
confidential that you've built and spent
5:25
a lot of time
5:26
and money doing so
5:27
and just be able to take it over you
5:29
know learn and apply it over here
5:32
but remember it has to be specific
5:34
methodologies and something that's
5:35
unique otherwise if it's just learned
5:37
experience and knowledge the less likely
5:38
it is to be protected okay
5:40
the other thing is companies and states
5:42
particularly the state of Florida they
5:43
want to protect the legitimate business
5:45
interests that can be identifiable this
5:47
is where it comes it's very important to
5:49
talk to your attorney about tailoring
5:51
business industries restrictions that
5:54
you need you know segmenting if you even
5:56
need to get that far and also take into
5:59
consideration different employees
6:01
risks
6:02
level of information
6:04
you know how dangerous are they to your
6:06
company if they leave in which case you
6:08
may want to provide them different types
6:09
of packages depending on the level of
6:10
sensitivity and confidential information
6:13
or damage they may be able to do if they
6:14
go into the market
6:15
there's additional consideration there
6:17
also that helps with the analysis if
6:18
that person has been able is able to
6:20
consider to continue to make a
6:22
livelihood or not when a court looks at
6:23
it but also the courts must balance the
6:26
right for free commerce
6:28
as well and free from restriction and
6:30
promote free comp you know not free
6:33
competition basically what they don't
6:35
want to do is have unfair competition
6:37
that would that's something that is
6:38
considered an American as much as you
6:40
know competition and commerce and free
6:42
converse is considered American because
6:44
it's not fair for someone to friends and
6:45
steal your confidential information as
6:46
an employee learned that this customer
6:49
likes has a dog named jack and jack
6:51
likes bones a particular type bone and
6:53
that's how you develop the relationship
6:55
and he's a
6:56
you know jack
6:58
likes to chat a lot he likes to talk
6:59
about his family about fishing that kind
7:01
of stuff is something that an employee
7:03
probably used under your umbrella under
7:06
your
7:07
compensation under your marketing
7:09
dollars and all that stuff so that's
7:10
something that may be very specific
7:12
um so it might be unfair to bring this
7:14
over here for an employee to
7:15
automatically compete with you
7:16
particularly if they bring the price
7:18
list over well you know abc company
7:20
gives you 10 off I’m going to give you a
7:22
12
7:24
because that's information that normal
7:25
competitors would not know
7:27
so keep this in mind you know that's
7:29
also a distinction sometimes people
7:30
confuse confidential information or
7:32
misappropriation of trade secrets or
7:33
confidential information
7:35
which is a separate protected issue
7:37
defined not only by federal law but also
7:39
state law as to what that is
7:41
um and that's a separate issue you know
7:43
that's that could be flat out theft
7:45
versus an employee actually taking
7:47
not just information but the
7:48
relationship that they built you know
7:50
john smith is the one that knows jack
7:52
uh john smith is you know the one who
7:54
talked to jack every week three times a
7:57
week and chatted about his family and
7:58
everything he loves to talk about so
8:00
jack is a little bit more dangerous
8:02
sorry john smith is a little bit more
8:04
dangerous for him to open up another
8:05
company so these are things that we want
8:07
to keep in mind when you're writing
8:08
these provisions and also understanding
8:10
the reasons behind some of these changes
8:12
or movements and dynamics are going on
8:14
behind the scene between employers
8:16
employees
8:17
and overall you know promoting
8:19
competition it just can't be an unfair
8:22
sort of restriction on competition or
8:24
commerce but it also you know there has
8:26
to be some counter countervailing um
8:28
sort of interest sort of speaker factors
8:29
as well
8:30
so these are things you want to consider
8:32
so
8:32
bottom line is currently there is no
8:34
restriction on these types of agreements
8:37
now that does not mean that they're not
8:40
coming down the line you know down the
8:41
pipe so to speak uh the federal trade
8:43
commission has been sort of asked that's
8:45
what the executive order kind of tells
8:46
the agency to look into the unfair use
8:49
of non-compete agreements and
8:50
non-solicitation agreements
8:52
so and type of covenants as well because
8:54
sometimes they're not just agreements
8:55
they may be actual separate covenants as
8:58
covenants that are contained within an
8:59
agreement for instance employment
9:01
agreement so they want basically they
9:03
have been charged with looking into
9:04
whether there's been sort of there's
9:06
unfair restrictive covenants that are
9:08
affecting employees mobility
9:10
unreasonably okay
9:12
non-solicitation was not specifically
9:14
the highlight of this order and people
9:16
are not really talking much about it but
9:17
it does talk about all type of
9:19
restrictive covenants and affecting
9:20
industries and it's basically asking the
9:23
federal trade commission to look into
9:25
um rulemaking abilities and what else
9:27
they may be able to do in order to kind
9:29
of stop this from the federal level but
9:31
it does not mean that it's going to
9:32
necessarily depending on what happens
9:34
withstand constitutional sort of
9:38
grounds or disputes and issues between
9:40
states rights to
9:42
protect their citizens and their
9:43
companies within their own borders so
9:45
it's gonna be a tight
9:47
balancing sort of fig for the Biden
9:48
administration to walk but it kind of
9:50
gives you an idea of what they're
9:51
looking to protect and um
9:54
understanding the factors that go into
9:55
these type of different uh dynamics so
9:58
non-solicitation agreements just so you
9:59
understand the difference it's really
10:01
more about
10:03
not soliciting a particular group of
10:04
people you might have defined it might
10:06
be you know existing customers might be
10:08
prospective customers that you started
10:10
developing a relationship with
10:12
i might be referral source which is also
10:14
protected in the state of Florida
10:16
past clients gets a little tricky uh
10:18
because it depends on whether the
10:20
information the employee has we're
10:21
particularly talking about employees
10:22
right now we're not talking about
10:23
business owners or buy sell agreements
10:25
or sales of businesses between parties
10:28
so that gets trickier because for
10:29
instance the longer that a client no
10:31
longer has a relationship with the
10:33
company or it might become stale the
10:35
less likely it is that's a protective
10:37
interest unless it's a recurring sort of
10:39
business source you know there's an
10:40
ongoing relationship in which case most
10:42
of the time they're not past clients or
10:43
existing clients
10:45
but that would also be very business
10:46
specific you know do your customers
10:48
place orders every six months and in
10:50
which case
10:51
you might define that person as an
10:52
existing customer you know unless they
10:54
haven't placed an order for two years
10:56
and if they haven't placed an order for
10:58
two years and typically the product or
11:00
the services is required every six
11:01
months it's less likely that particular
11:04
customer is going to be a protected
11:05
interest okay
11:07
so this is you know this is
11:08
non-solicitation agreements it basically
11:10
says you can't contact you know you
11:12
can't try to solicit an employee or take
11:13
them away from us and use them for your
11:14
company you can't solicit these type of
11:17
vendors potentially that there may be a
11:18
unique relationship with them
11:20
uh that's protectable
11:23
and also of course clients and how you
11:25
define this this is all very important
11:27
to define these things in the
11:29
agreement if they're overly broad
11:31
they're more likely to be struck down
11:33
right so this is something in general we
11:35
want to look into you don't want to have
11:37
contracts that are susceptible to being
11:38
considered invalid or heavy litigated
11:41
either because they're so ambiguous or
11:43
broad so these are things and generally
11:44
want to take the time to tailor these
11:46
type of provisions and covenants
11:48
whenever you have them for agreements if
11:49
they are stand-alone agreements
11:51
non-compete agreements have the same
11:52
issue and of course they get more
11:54
attention particularly under the
11:55
executive order Biden issued but
11:57
non-competes goes a little bit further
11:59
they basically might restrain an
12:01
employee from going to a company that
12:02
does compete with
12:04
your company
12:06
so and for a particular time period
12:08
sometimes if non-compete provisions are
12:10
narrowly tailored to just
12:12
basically keep you from competing with
12:14
customers you've already had contact
12:15
with within your prior employment
12:19
sometimes it's a year everything is
12:21
subject to reasonableness
12:23
so if you're asking for a five-year
12:25
restrictive covenant and the person for
12:28
instance was um potentially a nail tech
12:31
that might be considered unreasonable
12:33
especially if it's a large area
12:35
geographical area let's say you have
12:36
someone that's a nail tech and you're
12:38
restricting her for 50 miles for five
12:41
years that's most likely going to be an
12:43
unreasonable restrain on the person's
12:44
ability to make a livelihood for the
12:46
nail tech to make a living okay so it
12:48
has to be there has to be some
12:50
definition every business is so
12:51
different and unique
12:53
so you really have to understand against
12:54
me out and draft these provisions in
12:56
that way but that non-compete provisions
12:57
specifically restrictive covenants
13:00
there's concern there because again they
13:02
can keep you within the industry let's
13:03
say you're within
13:05
the
13:07
the shoe industry so to speak you sell
13:08
shoes okay depending on what level type
13:11
of employee you are whether you're at a
13:13
retail you know level which is less
13:14
likely to need protection
13:16
but if you're let's say an executive
13:18
level or a mid management level and you
13:19
may have information that is very
13:20
sensitive and if you went to let's say
13:22
from Nike to adidas
13:24
you know that could pose a problem
13:26
because you're well aware of the
13:27
information
13:28
on a potential national global level
13:30
depending on what segment you're in or
13:32
what your
13:33
your job functions are to cause harm
13:36
when you change companies significant
13:37
harm to the other company to their
13:39
goodwill to their reputation to their
13:41
sales plans you know where they're going
13:43
with things in the future you know where
13:44
they're going to expand where they're
13:45
going to retract this is information
13:48
that's obviously not readily available
13:49
to the public
13:51
so depending on what you know what type
13:53
of employee you have and what level of
13:55
access they have and sort of harm they
13:56
could potentially cause a company
13:59
that should dictate the level of
14:01
restriction if at all in some cases you
14:03
may not be restricting you know an
14:05
employee maybe you're just doing a
14:06
non-solicitation provision
14:09
or not because
14:11
basically the reason let me go back for
14:13
a moment so not compete basically would
14:15
depend on the level of the employee and
14:17
how much of restriction you should
14:18
tailor accordingly but for instance you
14:20
may have circumstances when you have
14:23
a competitor wants to hire your sales
14:25
customer service person you think well
14:27
okay you know i have i have you know 200
14:29
of them what damage can that cause
14:31
unfortunately sometimes the competitor
14:33
is doing that because you might be a
14:35
well-known you know very not just
14:37
personable because that really goes with
14:38
the employee their ability to be
14:40
personable and a good salesperson
14:42
but they may have access to certain
14:43
client information that
14:45
unfortunately the new employer wants to
14:47
um
14:48
the employee to bring the information
14:50
over and in which case it's sort of an
14:52
unfair competition situation and theft
14:54
another thing and a very and it's
14:57
literally list being taken over with
14:58
client-specific information
15:01
so there's all different circumstances
15:02
in which we're trying to protect but you
15:04
can probably the more i give you
15:05
examples you can probably see how
15:06
there's factors there's legitimate
15:08
interest in protecting businesses and
15:10
there's also legitimate interest and not
15:12
overly restricting employees when
15:13
necessary
15:15
and even aside from the biden order
15:17
these are things that you just don't
15:18
want to be litigating whether overly
15:20
broad or extensive
15:22
it just leads to more litigation more
15:24
difficulty potentially you're also
15:26
restricting or keeping good employees
15:28
that might be great for your business or
15:30
your company
15:32
they're more frightened by it basically
15:34
it's more scary uh you know for them to
15:36
potentially work with you they may
15:37
consider working with a competitor
15:38
that's a little bit more friendlier to
15:40
the employee
15:41
more flexible more understanding of the
15:44
overall bigger picture
15:45
so it just really depends on the
15:46
circumstances I’ve seen them all from
15:48
you know different employees to
15:49
executives and of course the non-compete
15:51
and non-solicitation provisions change
15:54
often with executives though they're
15:55
given
15:56
a year two years of worth of salary in
15:58
other words to stay out of competition
16:00
so they're being given a livelihood
16:01
almost even during the period of the
16:03
non-compete
16:04
and that makes sense for a lot of
16:05
companies it might just be a matter of
16:07
freezing them sort of out until the
16:09
market changes it's enough time period
16:11
for the market to change or that person
16:13
can no longer pose a threat given their
16:15
position or knowledge of the company
16:18
so these are
16:19
complicated topics but i just wanted to
16:21
talk to a little bit about and rest
16:22
assure everybody that the non-compete
16:24
agreements are not dead in the Biden age
16:26
and um once again we'll have a little
16:28
bit more podcasts that go into detail
16:30
about non-competes and give you examples
16:32
on the industries and maybe what
16:34
non-compete agreements would be
16:35
reasonable in a particular industry i'll
16:37
take apart this topic a little bit
16:39
further in other segments but hopefully
16:41
this has been helpful we want to
16:42
encourage you all to follow us on social
16:44
our social media accounts
16:46
also subscribe to our YouTube channel
16:48
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16:50
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16:51
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16:52
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sign up for our newsletter as well
16:56
and we want to thank you all for tuning
16:58
in and hopefully this information has
17:00
been helpful thank you so much
