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00;00;00;00 - 00;00;23;20
Tom Godar
Welcome to Husch Blackwell’s Labor Law Insider podcast. This is your host, Tom Godar. I’ve been practicing in the labor law sector for more than 40 years, and I can tell you that in no time of my practice has labor law had greater changes than in the last five, six years. We began the podcast in May of 2021 following the election of President Biden.
00;00;23;25 - 00;00;49;12
Tom Godar
And elections have consequences. And under the Biden administration, a new National Labor Relations Board with a new general counsel reshaped labor policies. And they were very consequential during that time because it was so important to stay on top of labor law issues. The family of Husch Blackwell Labor Law counsel more than doubled in its coast-to-coast reach to assist our client.
00;00;49;15 - 00;01;18;11
Tom Godar
Well, we’ve since had another election. In January of 2025, President Trump was inaugurated to his second but noncontinuous term. And once again, we’re seeing significant changes in how the National Labor Relations Board and its appointed members, the GC right now an acting general counsel, and the board members are going to interpret the National Labor Relations Act and its associated laws.
00;01;18;14 - 00;01;45;21
Tom Godar
So once again, we’re continuing a wild ride of labor law. That’s not likely to change soon. So buckle up and enjoy the Labor Law Insider podcast. It is so great to have you back for part two of our discussion about restrictive covenants, starting with non-compete agreements. But of course, a whole array of different kinds of post employment restrictions that employers might consider using in appropriate circumstances.
00;01;45;24 - 00;02;16;07
Tom Godar
And it’s against a background of all sorts of state laws, almost a patchwork, that allow or don't allow certain types of those restrictions. And we have two great insiders to continue this conversation with us. Tom O’Day is joining us from our Wisconsin office. And those of you who listen to the Labor Law Insider regularly know Tom’s got a broad practice, but a lot of it relates to protecting employers interests, both in the labor area as well as in this area.
00;02;16;09 - 00;02;47;19
Tom Godar
So a little bit of a different take for us. This time. That is in the area of protecting employers interests following the end of employment with an employee. So we're going to welcome Tom back. But right now we're going to hear from Tracey O'Brien, another one of my Husch Blackwell colleagues. But before we begin part two, which frankly, has already been recorded as I'm speaking, I wanted to share with you an update that came in just as we were getting ready to publish part two.
00;02;47;19 - 00;03;27;10
Tom Godar
That is, on September 11th the FTC chair, Andrew Ferguson, sent a bevy of letters to health care organizations and perhaps some others dealing with this topic of non-compete agreements and federal enforcement of those which might be considered by the FTC. Overly restrictive. I can't tell you how timely a subject this is. Last week, we started out with Tom O'Day telling us about sort of the federal interaction with regard to non-compete and their, you know, cousins that is now solicitation agreements and so forth.
00;03;27;13 - 00;03;56;13
Tom Godar
And between the time that we recorded this podcast and today, which happens to be on September 26th, the FTC and its chairman, Sherrod relatively short letter, but an important one exactly on this topic. It starts out with the statement by Chairman Ferguson that, quote, the FTC is committed to rooting out unfair and anti-competitive conduct in labor markets and the health care sector.
00;03;56;15 - 00;04;32;23
Tom Godar
That's an end of the quote. But essentially, it's reminding us that the FTC is not out of the business of monitoring non-compete agreements and arrangements, but it will be a targeted piece. Now, Tom did say that, of course, when we were introducing this topic in part one, but right now I just wanted to be able to share with our audience that non-compete, according to the FTC, can have particularly harmful effects in health care, and it can restrict patients choices, especially in rural areas.
00;04;32;26 - 00;05;05;05
Tom Godar
And this is a couple of the things that they offer. As you're looking at your own non-compete world. First, it's not going to be restricted to healthcare. Second, it's got to be targeted. And what Chairman Ferguson said is that non-compete will be looked at with, quote, due consideration as to whether they are necessary and appropriate under the circumstances, including whether they're less restrictive of alternative contract terms, may sufficiently achieve the same pro-competitive purposes.
00;05;05;07 - 00;05;28;22
Tom Godar
I'll end the quote there, but still, this is going to be something that we have to be mindful of. And this is the kind of thing that we're talking about in this podcast, that this is a nuanced area, an area where you have to look at state as well as federal law. And the specifics of each state may vary not only in terms of enforcement, but in terms of enforceability.
00;05;28;25 - 00;05;54;01
Tom Godar
But with that as background, I want to continue with our discussion that we began in part one, keeping in mind that this is well, it's about as relevant as it can be. Tracey, as we begin part two of this podcast, I want to move into a little bit deeper direction, if you will. I want to know how our clients and friends have to really take into account drafting non-compete agreements.
00;05;54;02 - 00;06;07;06
Tom Godar
As you look at the different types of restrictions that are allowed or not allowed in various states, and some of the nuances related to that drafting of non-competes. Tracey, give us some information about that.
00;06;07;08 - 00;06;34;28
Tracey O’Brien
Sure. So in states that allow non-compete but with some restrictions, there is a number of issues that employers should be aware of and should be reviewing when either drafting are entering into these non-compete agreements. First, they need to, of course, understand what type of interests are protectable. And typically those are trade secrets, confidential information and the good will of the company.
00;06;35;00 - 00;07;07;00
Tracey O’Brien
In addition, though, employers also need to understand, as we already discussed, the types of restrictive agreements outside of non-compete agreements that can be used to protect their legitimate business interests. And we've talked a little bit about those two there. Outside of those two issues. There's also a number of other issues that employers need to be aware. For example, there are restrictions with respect to the types of employees on which non-compete agreements can be imposed.
00;07;07;02 - 00;07;53;12
Tracey O’Brien
For instance, in the Massachusetts Non-competition Agreement Act, which was passed in October 2018, the law protects both employers and independent contractors. In addition, the law also bans non-compete with respect to four separate types of workers. Those category of workers include employees classified as Nonexempt employees under the FLSA. Also, non-compete cannot be imposed on employees who are undergraduate or graduate students who are employed in internships or other short term employment, whether or not paid or unpaid, so long as they are also enrolled in an educational institution.
00;07;53;14 - 00;08;23;16
Tracey O’Brien
In addition, there's a ban on non-compete agreements with respect to employees who are laid off or with respect to employees who are terminated without cause. Now, outside of the Massachusetts Non-competition Agreement Act, other states, including Massachusetts, under a separate statute, also have broad bans on certain category of health care workers, as well as on employees who earn a wage or salary below a certain minimum threshold.
00;08;23;18 - 00;08;47;27
Tom Godar
So it's interesting, isn't it, that lawyers around the country largely are unaffected by non-compete. So they certainly are in Wisconsin. And more and more states are looking to public policy to inform them that health care workers ought to be able to continue treating their patients and moving from place to place and talk about large investments. Many health care organizations have made huge investments in bringing people on board.
00;08;47;27 - 00;08;49;28
Tom Godar
So this is quite an arm wrestle, isn't it?
00;08;50;01 - 00;09;19;04
Tracey O’Brien
It is. And from the perspective of the state legislatures, who are drafting these non-compete laws, they're concerned about the shortage of health care workers, especially in rural areas. And they want to ensure that their constituents have access to health care. So that's part of what's driving this ban on non. With respect to health care workers, it also extends within the health care sector extends across many different categories of workers.
00;09;19;04 - 00;09;29;00
Tracey O’Brien
It's not just physicians but bands can see with respect to nurses dentists, chiropractors and even veterinarians.
00;09;29;04 - 00;09;50;11
Tom Godar
Well, before I asked about health care workers, you were also talking about wage restrictions or a measurement of wages below which those employers earning that amount could not be forced to take on the non-compete obligation. Some of those wages are in the hundreds of thousands, but many of them are just a couple times minimum wage. Correct?
00;09;50;16 - 00;09;52;02
Tracey O’Brien
That's true. That's true.
00;09;52;04 - 00;10;17;18
Tom Godar
But you have to be pretty thoughtful in each case to take a look at what the restrictions would be, because we have 50 variations. I don't know how many times a year Tom you get the question from our clients, many of whom have multi-state operations, about how should I look at somebody non-compete, who's coming in to work for us in South Dakota or Massachusetts or Florida?
00;10;17;20 - 00;10;21;08
Tom Godar
And each time we have to look at that specific bar, don't we Tom?
00;10;21;11 - 00;10;57;17
Tom O’Day
Right. It has always been and still continues to be state law driven. And like Tracey outlined it, even in those individual states, it is regularly changing and making sure that you've got your non-compete agreements and restrictive covenants up to date is really important. I think to the comments about health care workers specifically. But even more generally, what I generally advise clients is with every single of your employees, you should have a trade secret restriction and a non trade secret confidential information restriction that may be protected without a separate contract.
00;10;57;17 - 00;11;27;24
Tom O’Day
But I think a contract with your employees to protect those two interests is important and reasonable to do for every single employee. I also encourage clients that they should with almost all of their employees, have an employee non solicitation restriction because I too think that is fair. If you're going to employ an individual to say you can't, then leave our organization and pull a bunch of our coworkers that we have invested in with you for a reasonable period of time.
00;11;27;24 - 00;12;02;04
Tom O’Day
And again, most states recognize that's reasonable. Most states allow those kind of things to happen, and for the most part, they're not on the target list of federal or state legislatures or Congress or administrative agencies for health care in particular. I think it's reasonable for clinicians and those who are providing direct care to have a patient non solicitation restriction, similar to how a salesperson should have a customer or client non solicitation restriction.
00;12;02;04 - 00;12;35;03
Tom O’Day
I think it's reasonable if it's narrowly drafted and has to be making reasonable requirements under state laws, it's reasonable to keep a doctor or a nurse or a chiropractor or even a veterinarian from soliciting the customers of your organization or the patients of your organization for the next place they go. It's that fifth type of restrictive covenant, that geographic non-compete restriction that says, you, doctor, won't work within 25 miles of the hospital at which you provide services.
00;12;35;05 - 00;13;01;17
Tom O’Day
Those are what I think are more of the target of the federal agencies and the states. And I think it's important to draft those in a way that they can be severed from these other restrictions. And it's also important to put some thought into the justification for putting those geographic restrictions, those true non-compete restrictions into place in whatever industry that might be.
00;13;01;20 - 00;13;39;05
Tom Godar
The remarks that you've made, Tom, really helpful. And Tracey, so it tells me that when we're drafting or looking at the enforceability of a non-compete from somebody who might be coming in from another organization to one of our clients to work, we are looking at incredibly specific stuff. For instance, in Illinois, you have a really limited opportunities for non-compete, but there are opportunities, and I'm talking about it in the broadest sense, but they might be quite different for your sales force from your executive force, or maybe even a highly skilled technical person.
00;13;39;05 - 00;13;52;20
Tom Godar
There might be three different non-compete for that employer looking both at state law as well as what might be reasonable for that particular employee's role with that particular organization. Agree. Disagree. Tracey.
00;13;52;27 - 00;14;36;22
Tracey O’Brien
Yes, I definitely agree with that, Tom. Another issue is with respect to consideration. As I mentioned earlier, the Massachusetts Non-competition Agreement Act. It is the timing of the execution of the non-compete agreement that affects the type consideration that is necessary to support that non-compete agreement. So under the Massachusetts law, if a non-compete agreement is executed during employment, as opposed to at the commencement of employment, the statute expressly states that consideration must be fair and reasonable, and must be independent from continued employment, which is much different from other states laws.
00;14;36;28 - 00;14;44;23
Tracey O’Brien
For example, in Wisconsin, continued employment is considered sufficient consideration to support a non-compete group.
00;14;44;25 - 00;14;46;08
Tom O’Day
Well, and it's.
00;14;46;08 - 00;15;13;06
Tom Godar
Very interesting that even on what Tom talked about on the non solicitation of employees in many states, that has to be narrowly tailored. That is, if you have an employer that's got 3500 employees spread across five different locations, but your core interactions are with 40 of them then having a restriction that says don't solicit any of the employees.
00;15;13;09 - 00;15;33;01
Tom Godar
A court may say, no, that's overbroad. You don't have any specific interactions with or a goodwill with any of these. Other employers will restrict it to those with whom you work regularly, but maybe not somebody who's working in a different job, in a different state, in a different office time. Have you seen that play out in various areas?
00;15;33;03 - 00;16;03;27
Tom O’Day
Absolutely. And a former colleague of many of us in this law firm was an integral part of a massive Wisconsin Supreme Court case that dealt with that exact issue and when employers are considering the scope of the restrictions that they want to put in place for their employees, state law is important to determine what's allowed. But they're also, like Traci mentioned, at some point there is a deterrent effect.
00;16;03;29 - 00;16;34;17
Tom O’Day
So an employer may choose to include a very broad employee non solicitation restriction that says you can't solicit any of these 3500 employees that that work at our company, knowing that it might not be enforceable, and going to court and getting a court to determine whether it's enforceable might be expensive. But they might see value in having that restriction in place as a company, because it is protecting an important investment that they've made in their workers.
00;16;34;20 - 00;17;02;09
Tom Godar
Well, we've talked about a sort of broad area of federal interference with restrictive covenants, and it's narrowing as we speak under the Trump administration, as opposed to the Biden administration at the state level, except for Florida, which perhaps has extended even more protection to employers, or at least given specificity to what they will protect. So employers know the game rules down there.
00;17;02;11 - 00;17;23;02
Tom Godar
There seems to be an ongoing move towards greater restrictions. And so even if you have agreements that your counsel said, these are good to go four years ago, it's a good reason to take a look and say, has there been any change which would make it more difficult to enforce that agreement? Tom, you've given some great drafting advice.
00;17;23;02 - 00;17;45;21
Tom Godar
I'm going to start off with a couple of things and ask for you to maybe expand one. You said that, of course, it has to be narrowly tailored to the employer and the employee and to the various subsets of restrictive covenants, from the solicitation of customers or clients to the National Association of Employees and so forth, might be in separate provisions.
00;17;45;23 - 00;17;54;02
Tom Godar
Any other sort of drafting suggestions you have as you walk through this with folks who come to us for advice.
00;17;54;05 - 00;18;28;08
Tom O’Day
One important component of a restrictive covenant agreement is to include a severability or a divisibility clause. You want to be able to be able to argue to a court, even if you court find that geographic restriction is too broad and not enforceable. You can cut that paragraph out of this agreement, but still enforce the patient restriction or the employee non solicitation restriction, or the confidential information restriction so that severability or divisibility clause is important.
00;18;28;11 - 00;19;04;29
Tom O’Day
You also want to make sure you've got a successor clause in your agreement as well. If that is an important investment that you've made in your company, because a future partner of yours in a merger and acquisition, a joint partnership is going to look at those agreements and say, I too want that protection. And maybe they even more want that protection, because if they're going to buy your business, they want to know that those employees that they are purchasing as part of an asset deal or a stock deal are going to have those same restrictions in place.
00;19;05;01 - 00;19;13;17
Tom Godar
Really good thoughts. Yeah. And of course, for owners, it might even be different because when you sell a business there's a different set of rules that apply. Correct.
00;19;13;20 - 00;20;03;02
Tom O’Day
Very true. Very good point. Totally different rules of reasonableness apply to a sale of business context. There's a third provision that is always helpful to include in your restrictive covenant agreements. And that is a choice of law provision and a related form selection provision. And that means that if I am an employer and let's say Illinois, for example, which is generally hostile toward non-compete agreements, I might want to put a choice of law provision that is in the state of Wisconsin or Missouri or somewhere else, because I have an a connection to that state, but it's also a state that's more favorable or at least fair toward employers.
00;20;03;05 - 00;20;24;22
Tom O’Day
And oftentimes, a former employee will have left your company and gone to work somewhere else. They might have moved to Pennsylvania from the state of Wisconsin, but you still want to have that litigation over your non-compete agreement in the state of Wisconsin. You don't want to have that employee take advantage of their opportunity to file a court claim in Pennsylvania.
00;20;24;25 - 00;20;40;14
Tom O’Day
That makes it even more expensive for you to litigate and enforce that restrictive covenant agreement. So those state selections of choice of law are important. And then the forum selection of where you'll litigate any dispute is important to have as well.
00;20;40;20 - 00;21;07;18
Tom Godar
Those are so important to focus on. Recently, a client sent to a question to me and said, there's a non-compete with somebody that we'd like to bring on board. What's the likelihood that they'll want to enforce this? And while they had a choice of law, both the headquarters where this person worked and where the person physically showed up was in a different state, and they had a different way to look at the enforceability of non-compete.
00;21;07;18 - 00;21;34;05
Tom Godar
And I said, I think it's very unlikely that they're going to do anything. And I wrote a strong letter suggesting that this is the law that would apply, and they would have no way to bring a case. And, you know, it's five months later. I haven't heard from them. So the stuff you're talking about, time has a real impact upon how employers and employees are going to be able to enforce rights under the various laws that might be applicable.
00;21;34;07 - 00;22;01;01
Tom Godar
Tracey, let me ask you, when you're advising clients on a non-compete that they might have brought to your attention, but what kind of questions do you ask the employer, either to draft one for that employer to preserve some of the investments they've made in their technology or their employees, or to advise them on whether a non-compete from somebody who might come to work for them would be enforceable or an impediment.
00;22;01;01 - 00;22;03;06
Tom Godar
What kind of questions might you be asking?
00;22;03;09 - 00;22;33;14
Tracey O’Brien
So, Tom, I think I start off asking what types of legitimate business interests the employer is concerned about, what type of role the employee would have. How much interaction the employee would have with clients. All types of questions that get at the issue of whether the non-compete is targeted and not overly broad with respect to the employee's were seeking to impose a non-compete against.
00;22;33;16 - 00;22;59;01
Tom Godar
On occasion, I've asked my CEO or HR or the director or Chro to pick up the phone and call the former employer and say, hey, Joe or Jill has applied for, work with us. This is what they're going to do. What's your position on the enforceability of a restrictive covenants? Do you think that makes sense? Is there a circumstance where that's worthwhile, or are you just inviting the devil into the bargain?
00;22;59;04 - 00;23;30;00
Tom O’Day
I think it is important. I like to think that a smart approach to a company looking to enact new, restrictive covenants would be to internalize the decision making and the importance of the business interest they're protecting. So it might be a memorandum from the vice president of human resources to the chief executive officer saying, we are going to implement employee non substitution restrictions and customer non substitution restrictions for this subset of our employees.
00;23;30;02 - 00;23;55;24
Tom O’Day
The reason for it is because of the investment we've made in training our employees, the confidential information that we've shared with them. The trade secret type information and access to processes and policies that we have that are important for our company, and also the goodwill that we're allowing these employees to build. By giving them some basis for their client or customer relationship.
00;23;55;26 - 00;24;20;21
Tom O’Day
And if we and litigation could point to something like that contemporaneous with the decision to implement these restrictive covenants, that would be like gold in litigation, it would be a wonderful thing to point to hold up as an exhibit and say, this company does truly have a business interest in these protections, and here it is in black and white from the time we put them in place time.
00;24;20;22 - 00;24;42;01
Tom Godar
On that note, I think we'll say thank you very much for your participation. Thank you, listeners, for joining us on the Labor Law Insider. By the way, if you like this podcast, we'd appreciate it if you'd share it with others subscribed and press the like button. That'll help get these kinds of podcasts out to a world that might find them helpful for their own careers.
00;24;42;04 - 00;24;44;04
Tom Godar
Again, thanks, Tom, and thanks, Tracey.
00;24;44;07 - 00;24;47;26
Tracey O’Brien
Thank you, Tom, for the opportunity to join you on the Labor Law Insider.
00;24;48;00 - 00;24;58;04
Tom O’Day
Thanks, Tom. Much appreciated. This is an important topic and appreciate your opportunity to talk about it.