Regulating Noncompetes Beyond the Common Law: The Uniform Restrictive Employment Agreement Act
98 Indiana Law Journal 275 (2022)
The common law has never treated a post-employment noncompete agreement between employer and employee like an ordinary contract. Rather, a court will enforce a noncompete only if it is reasonably tailored in time, geography, and scope of business to further a legitimate employer interest. Suppressing competition is an understandable but not legitimate interest.
While the common-law approach works well enough for some occupations, it is problematic for both workers and employers in many cases. It is a challenge for workers who don’t know about the noncompete until after starting work, for lowwage workers who are unlikely to have trade secrets or star power over customer relationships, and for workers who are uncertain whether the noncompete is enforceable. The vagueness and variation between jurisdictions is also challenging for employers trying to avoid litigation while writing an enforceable noncompete or hiring an experienced worker purportedly subject to a noncompete.
Adding to the complexity are related agreements such as nonsolicitation agreements, confidentiality agreements, payment-for-competition agreements, and training-reimbursement agreements. Some states subject the entire family of agreements to a single framework, but many states use different standards or are silent about these siblings.
In recent years, at least eighteen states have enacted statutes regulating noncompetes more or less comprehensively. This is leading to a cacophony of statutory commands around the hum of the common law. The frustration, complaints, variety, and confusion inspired the Uniform Law Commission in July 2021 to promulgate the Uniform Restrictive Employment Agreement Act to be pushed out to the states for adoption in the upcoming months and years.
The Uniform Restrictive Employment Agreement Act clarifies and codifies the common law by specifying four legitimate employer interests for a noncompete (sale of a business, creation of a business, trade secrets, and customer relationships) and articulating a narrowly tailored standard. The Act adds precision by giving an outer time limit of one year for most agreements. The Act makes four key moves beyond the common law: it prohibits as well as makes unenforceable improper agreements, with statutory damages; it sets maximum restrictive periods, usually one year; it bans noncompetes for low-wage workers; and it requires advance notice for an enforceable agreement.
This Article explains the motivation behind the Uniform Restrictive Employment Agreement Act and ways in which it codifies and clarifies the common law and ways it goes beyond.
Schwab, Stewart J.
"Regulating Noncompetes Beyond the Common Law: The Uniform Restrictive Employment Agreement Act,"
Indiana Law Journal: Vol. 98:
1, Article 6.
Available at: https://www.repository.law.indiana.edu/ilj/vol98/iss1/6