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Differing State Laws on Restrictive Covenants

By Joshua Horn

One of the most controversial areas of employment law, the enforceability of restrictive covenants — which often take the form of noncompete agreements, non-solicitation clauses, or non-disclosure agreements — can be very difficult for employers to navigate. With the increasing mobility of the American workforce and the ease of access to sensitive information brought on by modern technology, drafting an effective and enforceable restrictive covenant is essential to protecting your interests as an employer as well as the interests of the company as a whole. According to recent research, as much as 18% of the American workforce has entered into some form of a restrictive covenant, most commonly in the form of a noncompete agreement. Because the laws vary widely from state to state, knowing the law of your jurisdiction is crucial in drafting an enforceable restrictive covenant that adequately protects your business interests.

Both the nature of the agreement and the context into which it is entered will affect the enforceability of the agreement. This ultimately turns on which state's law applies –€” often depending on where the dispute is litigated. Although choice of law and venue provisions may ensure that the dispute is litigated in a favorable venue of your choice, some states, such as California, impose restrictions on these clauses as well. However, most states have adopted some version of the Second Restatement of the Conflict of Laws, which applies a “significant relationship” test for agreements without a choice of law provision.

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