Legislative Update: Illinois and Pennsylvania pass targeted noncompete, nonsolicit exemptions

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Since my last update, three new noncompete bills have been passed — two in Illinois and one in Pennsylvania.

All three are very limited.

A brief side note…

Contrary to the impression created by some in the media, by some politicians, and by some academics (not you Evan!), there has not been a groundswell of legislative activity to ban noncompetes.

What there has been, with the exception of Minnesota, is an appropriate (in my view) attention to third-party interests and fairness and transparency updates for specific public policy reasons. Accordingly, most of the bills — and new laws — involve restrictions on the use of noncompetes for low-wage workers, healthcare workers, and others (e.g., veterinarians), and requirements that employees receive certain notices concerning the use of noncompetes. In fact, 29 of the 73 noncompete bills that were pending this year were targeted to healthcare workers, and 13 of the others (15 in total) addressed notice requirements.

Instructively, only 10 of the 73 noncompete bills proposed a ban, and six of those have already died.

And to those who say that the momentum to restrict (or ban) noncompetes resulted from the FTC’s activities, that’s not quite right. The momentum in legislation gained steam following the Jimmy John’s debacle in 2014, the first federal noncompete bills in 2015, and President Obama’s Call to Action on noncompetes in 2016. The FTC’s rule was a late entrant. For a chronology of the changes in laws before this year, see Changes in noncompete laws since 2011. As will be clear, relatively few changes preceded Jimmy Johns, and then all of the sudden, there was a flurry. Indeed, in the three years before Jimmy John’s, there were two changes; in the three years after, there were 14. And the momentum has built upon itself over time. It is my sense that the FTC’s noncompete rule simply got a lot of press attention, but did not affect the state legislative activity. In contrast, the rule certainly created a lot of confusion and caused a lot of companies to spend a lot of money on lawyers, all for naught.

Onto the new laws…

Illinois

On August 9, 2024, Illinois passed two new laws, both effective on January 1, 2025, and both adding to the exemptions from noncompetes and nonsolicitation agreements already extant since the 2022 overhaul of Illinois noncompete and nonsolicit laws. The new laws are as follows:

One of the new laws provides that noncompetes and nonsolicits “shall not be enforceable with respect to the provision of mental health services to veterans and first responders by any licensed mental health professional . . . if the enforcement of the covenant not to compete or covenant not to solicit is likely to result in an increase in cost or difficulty for any veteran or first responder seeking mental health services.” Good luck figuring out how to apply that!

The second of the new laws essentially clarifies the exemption for construction workers, making it clear that the exemption applies to certain construction workers “regardless of whether an individual is covered by a collective bargaining agreement.”

Pennsylvania

On July 17, 2024, Pennsylvania passed a new law, effective on January 1, 2025, banning noncompetes for medical doctors, doctors of osteopathy, certified registered nurse anesthetists, certified registered nurse practitioners, and physician assistants (to an osteopathic medical practice or a medical practice), but specifically allowing noncompetes if they are no longer than one year and “the health care practitioner was not dismissed by the employer.” The law also modifies requirements concerning certain related issues, including notifications that must be sent to patients, when healthcare practitioner noncompetes will survive in the context of the sale of a business, and the express allowance of an employer’s recovery of costs associated with a healthcare practitioner’s departure.

The law also requires a study to be conducted within three years concerning the effects of the law.

Recap

For those keeping track, there have already been a bunch of changes to noncompete laws (and related laws) this year, and they will likely continue.

Here are the six other new noncompete laws (through seven bills) that passed so far this year:

  • Colorado amended its noncompete law to limit an employee’s remedies when the attorney general brings an action on behalf of the employee for a violation of the noncompete law. (The new law will likely take effect on August 7, 2024.)
  • Iowa removed the significant penalties (potential loss of registration and fines) for employment agencies violating the ban on noncompetes for certain of their healthcare workers (effective July 1, 2024, with retroactive impact).
  • Louisiana imposed significant limitations on the use of noncompetes for primary care physicians (PCPs) and other physicians (effective January 1, 2025, with retroactive impact).
  • Maryland restricted the use of noncompetes for physicians and other healthcare providers (effective July 1, 2025) and banned them for veterinarians and vet techs (effective June 1, 2024 with questionable retroactive impact).
  • Rhode Island banned (through two bills) noncompetes for advanced practice nurses (effective June 14, 2024).
  • Washington expanded its noncompete law making it harder to enforce noncompetes (effective June 6, 2024).

In addition to the noncompete bills that passed this year, bills relating to other restrictive covenants have also passed this year, including the following:

  • Colorado amended its law to give its attorney general the ability to promulgate regulations concerning training repayment agreements (sometimes pejoratively called “TRAPs” by adding the redundant term, “provisions,” to the name: “training repayment agreement provisions”) and to enforce those laws. (As noted above, the new law will likely take effect on August 7, 2024.)
  • Minnesota passed a new law limiting disintermediation (no-poach) agreements between “service providers” (i.e., companies acting as “an employer or manager for work contracted or requested by a customer”) and their customers (effective July 1, 2024).
  • Washington expanded its law to make it harder to enforce nonsolicitation agreements and no-service agreements (effective June 6, 2024).

The stats

State: 

  • 73 noncompete bills have been pending in 33 states this year.
  • 17 of those noncompete bills already died.
  • Ten noncompete bills (9 new laws) were enacted (see above and here).

Federal: 

  • Six bills are (still) pending in Congress, as well as two B2B no-poach bills, called the “End Employer Collusion Act,” and a 2023 bill to create a Digital Consumer Protection Commission, with a whole regulatory scheme, including establishing that the use of noncompetes (as well as other conduct) by an operator of a “dominant (digital) platform” is an unfair method of competition — which, if it ever passes, will presumably be used by the FTC as support that noncompetes can be a UMC under the FTC Act. (With the exception of the last, these bills were all covered in our March 10 post. But if you want more details, see here and here.)
  • New in Congress:
    • On July 11, 2024, Representative Gary Palmer (R-AL) proposed a joint resolution to the Committee on the Judiciary to “disapprove” the FTC’s rule and that “such rule shall have no force or effect.” Of course, as Senator Warren correctly points out, even if the joint resolution were to pass the Senate and House, it would be vetoed by President Biden.

Lest you think Congressional efforts will go away, proponents of these bills are still trying to push their bills forward, and, with the setting aside of the FTC’s noncompete rule, you can expect an increased push by those members in Congress.

Regulatory efforts

Obviously, the FTC’s noncompete rule is not (quite) dead yet. Although it was set aside by the United States District Court for the District of Texas, the plaintiff in ATS Tree Services v. FTC is inexplicably pressing forward with its case. We know where that goes. But more on that in an upcoming post. Spoiler alert: That will not help anyone other than (maybe) ATS Tree Services’ lawyers. 

To-dos

With that as the backdrop, we continue to urge companies to use noncompetes only when they are actually needed — not when they are not. And, while important, noncompetes should not be the only one companies rely on. There are many steps company can and should take to protect their information, retain their customers, and maintain the integrity of their workforce, including:

  • Reviewing and updating agreements and policies to ensure compliance with all of the new state-law developments. This includes, in particular, noncompetes, broad confidentiality agreements, and other agreements in the crosshairs (including no-recruit agreements, nonsolicitation agreements, anti-moonlighting provisions, and training repayment agreements (pejoratively called “TRAPs”)), as well as internal policies that my be treated like impermissible restrictions on employee competition.
  • Reviewing and updating procedures (including the use of data loss prevention software) for protecting trade secrets, other confidential information, and goodwill (see trade secret protection program primer and checklist).
  • Using supplemental agreements and approaches to mitigate the impact of the tightening restrictive covenant laws. For example:
    • Notice provisions (“true” garden leave clauses) may, to the extent enforceable, offer meaningful protection for a short term.
    • Springing noncompetes (a court-ordered noncompete as a remedy for a violation of other restrictive covenants or obligations) may create both a deterrence effect and provide a partial remedy for wrongdoing that is discovered early enough. This is a tool created years ago for a client who did not want to use a noncompete, but was worried about the impact of employees violating the other restrictive covenants. It has since been incorporated into Massachusetts noncompete law (MNAA, G.L. c. 149, § 24L(c)).
  • Emphasizing training. Never lose sight of one of the easiest and most effective tools you have is to educate and train employees, especially at onboarding and off-boarding, and with special attention to employees working remotely.

These are just highlights. There are many more to consider. Now is the time.

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Firm resources: 

We know how hard it is to keep up with the ever-changing requirements around the country. To help, we have created the following resources (available for free):

We hope you find all of these resources useful. More are coming.

And please note, we are grateful for all of the input we’ve received over the years. We welcome any suggestions for improvements that you may be willing to share.

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*A huge thank you to Erika Hahn for all of her extraordinary help in tracking and monitoring all of the bills around the country and helping me make sure that all of our resources are current and accurate.

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