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Non-Compete Agreements: An Ever-Evolving Legal Landscape

The propriety of restrictive covenants – including covenants not to compete – has long been a contentious topic in the realm of employment law. Many debates center on balancing the interests of employers in protecting their business assets with the rights of employees to pursue opportunities freely. In recent years, there have been significant developments in this area reflecting evolving societal attitudes and changing economic dynamics.

One notable trend is the growing scrutiny of overly broad non-compete agreements. Historically, these agreements have often been used by employers to prevent employees from working for competitors or starting their own ventures in related industries. However, courts and legislatures are increasingly recognizing the potential for abuse and the negative impact on employee mobility and innovation. Like Peter Jepsen in Jepsen v. Graham Capital Management LP, plaintiffs are using this trend to their advantage, arguing their non-compete agreements are overly broad and the court should rule them unenforceable.

Several states have enacted legislation to curb the use of overly restrictive non-compete agreements. For example, California has long upheld a strong public policy against such agreements, with limited exceptions in narrow circumstances. More recently, Illinois, Oregon and Washington have passed laws imposing stricter requirements on the enforceability of non-competes, including mandatory notice periods, consideration requirements, and prohibitions on agreements for low-wage workers.

Additionally, there has been a growing push for transparency and fairness with respect to non-compete agreements. Some jurisdictions now require employers to disclose the terms of non-compete agreements upfront, allowing employees to make informed decisions about their employment prospects. In some of these jurisdictions, an employer cannot make an employee enter into a non-compete agreement after they have already started working, absent new consideration (such as a payment of a bonus). 

Another noteworthy development is the increased attention on the effect of non-compete agreements on innovation and economic growth. Because overly restrictive non-competes can hinder job mobility, some state lawmakers are advocating for reforms to strike a better balance between protecting legitimate business interests and promoting competition and innovation.

Recent legal developments related to non-compete agreements and other restrictive covenants reflect a growing push for reform. As the legal landscape continues to evolve, it is essential for businesses and individuals to stay informed and adapt to these changes accordingly.

In a memorandum supporting a motion for a summary judgment in his favor, onetime portfolio manager Peter Jepsen says his 2006 noncompete agreement is "virtually global in its scope" because it blocks him from working in any of the 38 countries that belong to the Organization for Economic Co-Operation and Development, or OECD. It also forbids him from working in any country in Europe, China, Singapore, Russia, India or Israel, Jepsen's memorandum states. 'As a result, the restrictions here are too broad, e.g., 24 months and worldwide, and are therefore unenforceable,' the Tuesday filing argues.

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labor & employment