Public interest factors may also limit the application of non-compete obligations for government contractors. Government contractors must deal with the fact that FAR 52.237-3, Continuity of Services, can be an important factor against the application of a non-compete obligation. This clause requires that the work of the government`s mandate „continue without interruption“ if the services provided for in the contract are deemed essential. In this context, the non-compete obligations of an established government contractor may be excluded if the successor needs these employees to perform his or her contract and a work disruption threatens national security. More concrete guidelines or regulations may be introduced to help employers, including federal contractors, navigate this new legislation. With the proposed legality date of the ban on the horizon, entrepreneurs should review their non-compete obligations and internal policies and continue to consult with lawyers to determine whether they can best change their practices to meet the requirements of the ban and minimize the risk of getting involved in the first wave of litigation as ambiguities in the new law are tested. This trend has continued over the past year. In May 2021, Oregon amended its non-compete obligation to explicitly provide that excessively extensive non-compete obligations are null and void and unenforceable, which may limit a court`s ability to enforce a narrower version of this non-compete obligation. See Oregon Senate Bill 169 (change of the relevant legal language from „voidable“ to „voidable and unenforceable“). Also in May 2021, Nevada amended its laws to provide penalties for employers seeking to enforce non-compete obligations prohibited by law. See Nevada Assembly Bill 47 § 22.5 (7) (Obligation of courts to award attorneys` fees and expenses if an employer wrongly attempts to (i) enforce a duty not to compete with an employee paid by the hour or (ii) prevent employees from dealing with former clients that the employee has not requested). Sturgill received his certification and chose a full-time job at a local charter school as a speech-language pathologist.
The local charter school had used Reading for some subcontracting work in the past. Reading then sued Sturgill in Fairfax County, claiming it breached its non-compete obligation by accepting a job at the charter school. Sturgill won in his case for several reasons. In addition to monitoring state and federal developments regarding non-compete obligations for employees, employers should consider existing enforcement parameters. In general, non-compete obligations should not be broader than necessary to protect the legitimate business interests of the employer. Employers should not expect a court to partially enforce and enforce excessive provisions with blue pens, as a court may not have the power to do so or simply refuse to enforce an overly broad non-compete obligation. In order to increase the likelihood that a non-compete obligation will be enforceable in its original form, the agreement should be closely adapted in terms of the duration and geography and nature of the prohibited competitive activities. For example, a provision prohibiting work in any capacity for a competitor may be challenged. Interestingly, since Sturgill was still waiting for a license, she was directly supervised by Reading staff (as they had approved her schedule), and her supervisors had given their final approval on many issues related to her work. As a result, the Reading Court found that Sturgill was not an independent contractor and had been misclassified. The Court concluded that Sturgill was in fact an employee and that the non-compete obligation was therefore contrary to public policy.
Specifically, the court found that because Sturgill had been misclassified, Reading had failed to comply with Virginia and federal laws regarding the taxation of employment. In other words, the employer probably should never have brought an action because it exposed itself to other legal and tax issues. The case does not appear to have been challenged, so it is likely that the employer acknowledged the growing problems and withdrew decisively. While this new law has caught the attention of all employers, federal contractors in particular have had a lot of questions about this bill since we published our first blog about it in January. Unfortunately, the current wording – which could still change – creates some uncertainty about the potential extent of its application in the future. Here are the three most important questions we receive from federal contractors and employers with branches in D.C: Non-compete obligations should be closely tailored to a particular business interest, as applicability may depend heavily on the specific factual scenario in which it occurs […].
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