SB 69

Current law

Covenants not to compete.

Under current law, a covenant by an employee or

agent not to compete with his or her employer or principal during the term of the

employment or agency, or after the termination of that employment or agency, within

a specified territory and during a specified time (covenant not to compete) is lawful

and enforceable only if the restrictions imposed are reasonably necessary for the

protection of the employer or principal. Currently, any covenant not to compete that

imposes an unreasonable restraint on an employee or agent is illegal, void, and

unenforceable even as to any part of the covenant that would be a reasonable

restraint.

The bill

Restrictive covenants.

This bill repeals current law relating to covenants not

to compete and instead creates a new provision relating to restrictive covenants in

employment and agency relationships. Under the bill, "restrictive covenant" means

an agreement that restricts or prohibits competition by an employee or agent of a

business or professional practice during the term, or after the termination, of the

employment or agency relationship, but does not include an agreement that does not

restrict or prohibit competition by an employee or agent of a business or professional

practice, including any of the following:

1. An agreement restricting or prohibiting an employee or agent from

disclosing business or professional information that is valuable and confidential to

the employer or principal, but that is not valuable and confidential to a competitor

of the employer or principal or useful to the employee, the agent, or a competitor in

obtaining a competitive advantage over the employer or principal.

2. An agreement restricting or prohibiting the solicitation or hiring of an

employee or agent who is not privy to valuable and confidential business or

professional information of the business or professional practice, who does not have

substantial relationships with existing or prospective customers, patients, or clients

of the business or professional practice, and who has not received unique,

extraordinary, or specialized training provided by the business or professional

practice or otherwise obtained as a result of the employment or agency relationship

with the business or professional practice.

Reasonableness and valid consideration.

Specifically, the bill provides

that a restrictive covenant is enforceable if the restrictive covenant is reasonable as

to time, area, and line of business and is supported by valid consideration (generally,

any payment or other thing of value given in exchange for entering into the

restrictive covenant). The bill requires a court to determine that a restrictive