Noncompetes in a Downsizing World

Abstract

As the nation confronts multiple federal and state attacks on employee noncompetition agreements (NCAs), one issue has remained relatively obscure: may an employer that terminates a worker for reasons not related to performance nevertheless enforce an NCA? A scattering of cases mostly holds no, and the recent Restatement of Employment Law’s agreement with those decisions is likely to be very influential for the great majority of jurisdictions that have not yet addressed the question but may be forced to in light of massive COVID-related layoffs. This Article supports the Restatement’s proposed rule, while exploring the fascinating doctrinal and policy issues implicated in the question. Ultimately, it sees the rule as rooted in concerns about fairness to employee that are typically given short shrift in current doctrine. This is true even for a Restatement that otherwise seems decided to opt for an economic approach that would validate NCAs that are “reasonably tailored” to defined legitimate employer interests.Adoption of a rule denying enforcement in such situations also poses some interesting second-order questions, such as how to determine when a termination is performance-related and probable employer responses to a new dispensation. All are explored in the pages that follow.