Labor Committee Approves Noncompete Ban

Issues & Policies

The General Assembly’s Labor and Public Employees Committee this week approved legislation banning most noncompete agreements.

HB 5269, which cleared the committee on an 8-4 party line vote, invalidates all noncompete agreements on July 1, 2024, if any of the following apply:

  • The employee is a non-exempt (hourly) employee, 
  • The employee is an exempt employee (salaried) who earns less than three times the minimum wage ($97,905 per year for a full-time employee at $15.69 an hour), 
  • The independent contractor earns less than five times the minimum wage ($78.45 hourly based on $15.69 minimum wage) 

CBIA strongly opposed the bill, which applies to employees and independent contractors, while noting that there are circumstances where such agreements are inappropriate.

However, the new restrictions proposed in HB 5269 remove the protections noncompete agreements provide in circumstances where they are needed most. 

Enforceable Agreements

Under the bill, certain noncompete and exclusivity agreements are only enforceable if they meet the following conditions: 

  • Period of time is less than one year
  • Necessary to protect a legitimate business interest of the employer and such legitimate business interest could not reasonably be protected by less restrictive means
  • No more restrictive than necessary in terms of the duration, geographic scope, type of work and type of employer
  • Employee is exempt
  • A written copy is provided to the worker not later than 10 business days prior to (A) the worker’s deadline to (i) accept an offer of employment, or (ii) enter into an independent contractor relationship, or (B) the date the covenant not to compete is signed, whichever is earlier
  • Agreement includes a document outlining the worker’s rights
  • Does not unreasonably interfere with the public interest
  • Employment was not terminated by the worker for good cause attributable to the employer or contractor 
  • Does not require a worker to submit to adjudication in a forum outside of the state

Minimum Wage Threshold

CBIA’s Ashley Zane told committee members that using a multiple of the minimum wage as a threshold to invalidate noncompete agreements was “problematic.”

For one, the minimum wage is indexed, resulting in a moving target whereby an agreement may be invalidated over time due to wage increases.

This threshold ignores the needs of many industries providing good, middle-class jobs that use geographically and durationally limited noncompete agreements, such as hair care professionals, golf course pros, and even members of the clergy. 

The bill voids any noncompete where an employee subjectively believes they have good cause to end the employment relationship.

This threshold is out of line with the current average salary in the state of $66,113 per year. 

Finally, the bill voids any noncompete agreement where the employee subjectively believes they have good cause to end the employment relationship that is attributable to the employer.

Thus, an employee that misguidedly believes they had good cause to end an employment relationship could cause irreparable economic harm to an employer before a court could invalidate their claim. 

The bill now will be given a fiscal note, legislative summary, and then be sent to the House floor for a vote.

For more information, contact CBIA’s Ashley Zane (860.244.1169) | @AshleyZane9.


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