Vermont Draft Bill Seeks to Outlaw Nearly All Non-Competes
To be sure, some states are, and have been, more aggressive in their respective attemps to curtail non-competes. At one end of the spectrum you have very employee-friendly states like California, where there is a ban on such clauses; on the other end of the spectrum, you have pro-employer states like Texas and Florida, where there are certain presumptions about the business's legitimate interests that are being protected by these agreements and their enforceability.
And, of course, you have states that fall in the relative middle of those two extremes, such as Illinois and New York, which, to varying degrees, have adopted a more case-specific approach, that require the courts to ascertain whether the employer's interests that they seek to protect are indeed legitimate, and if so, to then balance those interests against the departing employee's interests in finding other, or better, employment in their chosen field.
What Vermont's Legislature is Seeking to Do
Recently, Vermont's House of Representatives proposed the following legislation, which would ban all non-competes other than in two distinct areas - the sale of a business, or the dissolution of a partnership.
Don't take my word for it; here's the proposed language, which if adopted, would take effect as of this coming July:
§ 495m. AGREEMENTS NOT TO COMPETE; PROHIBITION; EXCEPTIONS
(a)(1) Except as otherwise provided by this section, an agreement not to compete or any other agreement that restrains an individual from engaging in a lawful profession, trade, or business is prohibited. (2) Any provision of an employment contract or other agreement that violates subdivision (1) of this subsection shall be void and unenforceable.
(b) Notwithstanding subsection (a) of this section, a person may enter into an agreement not to compete with a business entity or a similar agreement that restrains the person from engaging in a lawful profession, trade, or business within a specified geographic area in which the business entity carries on its business under the following circumstances: (1) With respect to a business entity, the sale of: (A) all or substantially all of the person’s ownership interest in the business entity or its operating assets; or (B) all or substantially all of the person’s ownership interest in a subsidiary or division of the business entity or the operating assets of a subsidiary or division of the business entity. (2) With respect to a partnership in which the person is a partner, the dissolution of the partnership or the dissociation of the person from the partnership. (3) With respect to a limited liability company in which the person is a member, the dissolution of the limited liability company or the termination of the person’s interest in the limited liability company. (c) Nothing in this section shall be construed to prohibit an agreement that prohibits the disclosure of trade secrets as defined in 9 V.S.A. § 4601. (d) As used in this section, “business entity” includes any partnership, limited liability company, corporation, cooperative, or mutual benefit enterprise.
This proposed legislation - and, candidly, I don't know whether this will pass or not - leaves no doubt that Vermont's legislature is leaning heavily towards the pro-employee side of the scale in the ongoing debate over the propriety of non-compete agreements.
This proposed law falls just short of the outright ban that is in California, but attempts to carve-out a small niche of instances where a non-compete would - and should - be permitted, such as assuring that someone who has just sold their business (and its good will), can't just turn around and divert, or steal, that good will from the purchaser of the business. In New York, there is a separate name for this concept, where it is colloquially known as the "Mohawk Doctrine," based on the Court of Appeals' opinion in Mohawk Maintenance Co. v Kessler, 52 NY2d 276, 283 . (For additional information on this topic, please see, "Why, in Some Cases, a Non-Solicitation Clause Will be Implied.")
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