Alternatives to Non-Compete Agreements
August 17, 2021
By: Chad J. Sullivan
Non-competition agreements have recently come under attack at both the federal and state level. Last year, for example, Indiana passed a law providing greater restrictions on non-compete agreements related to healthcare professionals. At the federal level, in July President Biden issued an executive order that,among many other competition-focused objectives, encourages the Federal Trade Commission (FTC) to “curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility.” Of potentially greater impact is the Workforce Mobility Act pending in the United States Senate. This bill, if enacted, would prohibit the use of non-compete agreements except for in the context of a sale of business or ownership interest. Accordingly, more and more employers are looking for viable alternatives to non-compete agreements. Some of these alternatives to consider are as follows:
Forfeiture for competition: This is an agreement which provides an employee would forfeit a benefit such as deferred compensation or incentives if he/she competes with the employer;
Clawbacks: This type of provision is similar to the forfeiture but would require an employee to repay compensation already paid if they work for a competitor;
“Bad boy” clause: This option requires forfeitures or clawbacks of previously paid compensation for bad acts such as disclosing confidential information or publicly disparaging an employer;
Garden Leave: Garden leave is used more predominantly in the UK than the US currently and provides for payment to the employee for a defined period of time, without requiring the employee to perform any duties. Essentially it pays for the employee to sit on the bench for a specified period of time.
If you have any questions regarding the enforceability of non-compete agreements, or these alternatives to non-compete agreements, please reach out to an attorney in our Labor and Employment practice group.