Recapping Major Non-Compete News from Around the Nation

• New Mexico has passed a new law that limits physician non-compete agreements. 

Although the law places some limitations on restrictive covenants for doctors, it is not an outright ban of such restrictions (of the sort found in several states like Alabama or Massachusetts).  Under the new law, employee physician non-compete agreements are banned.  If an employee physician separates from a practice after less than three years and wants to compete, the practice can require the employee to repay things like loans, relocation expenses and signing bonuses.  Beyond three years, and the employee physician can leave with no strings attached.

But now for the kicker:  The new law does not ban non-solicitation provisions, and in fact, contains a specific section that recognizes the enforceability of physician non-compete agreements.  So in New Mexico, although employee physician non-compete agreements are now unenforceable, non-solicitation provisions are still fair game.  This is in stark contrast to – say – Massachusetts, which bans not only physician non-compete agreements but also non-solicitation agreements.  A recent case out of Suffolk County, MA drives the point home:  There, the court enjoined the former medical practice from doing anything that would prevent the doctor from practicing medicine or communicating with his former patients!  See Velazquez v. Eye Health Associates, LLC, No. 2014-693, 2014 WL 7466732, at *5 (Mass. Super. Oct. 1, 2014).A couple additional notes:  The law does not apply to physicians who are shareholders, owners or partners in healthcare practices.  So you can still put the full handcuffs on anybody who had equity in the practice.  The law goes into effect on July 1, 2015 and is not retroactive.

• Jimmy Johns & Non-Compete Agreements:  No, Jimmy Johns Didn’t Win

A number of commentators have hailed this as a victory for Jimmy Johns and claimed that Jimmy Johns prevailed in defending its non-compete agreements in court.  These commentators clearly have no idea what they’re talking about.  Let’s get a few things straight:  A number of plaintiffs – current and former Jimmy Johns employees – sued Jimmy Johns seeking a declaratory judgment holding their non-compete agreements unenforceable.  In dismissing the claim for a declaratory judgment, the court did not rule that the non-compete agreements were valid, enforceable or otherwise defensible.  Instead, the court kicked the claim for lack of standing.  Anybody who has pursued a declaratory judgment in federal court knows that you can’t just get an advisory opinion— you need an actual case or controversy. Dec actions are frequently dismissed for lack of such a controversy.  This case provides a perfect example:  Yes, Jimmy Johns subjects its employees to ridiculous, unenforceable non-compete agreements.  But no, Jimmy Johns has never actually sued or even threatened to sue a low level employee for breach of a non-compete.  Jimmy Johns has never threatened to enforce the agreements.  As a result, there is no real controversy.  It would be a completely different ballgame if Jimmy Johns had threatened litigation- then you’ve got standing.  So, bottom line, the plaintiff’s attack on Jimmy Johns’ non-compete agreements failed on a technicality, not on the merits.

• Wisconsin Supreme Court:  Continued Employment is Sufficient

The Wisconsin Supreme Court handed down an important decision related to consideration.  In Runzheimer Int’l, Ltd. v. Friedlen, the Court held that continued employment alone is sufficient consideration to support a non-compete agreement.  As a result, an existing employee can be required to sign a non-compete agreement without any need for additional consideration.  This sort of decision once again highlights the tremendous state-to-state variation that exists in non-compete laws:  In Florida, continued employment is sufficient consideration.  In North Carolina, it’s not.

• Arkansas Becomes a Mandatory Blue Pencil State

Historically, Arkansas courts would not blue pencil non-compete agreements.  As  result, any non-compete agreement that was overbroad in terms of temporal or geographic scope was unenforceable.  That’s about to change. Arkansas Governor Asa Hutchison has just signed Act 921 into law.  The new requires courts to reform overbroad restrictive covenants to make them reasonable and enforceable. That’s a huge change.  Some states have moved from no blue pencil to allowing blue pencil.  Arkansas moved from no blue pencil to requiring blue pencil.  The law takes effect on August 6, 2015 and is not retroactive.  Expect a wave of non-compete litigation in Arkansas late this summer.