Limitations on Restrictive Employment Agreements

Under current law, there is an exemption from the general prohibition against covenants not to compete. The exemption allows for a covenant not to compete under specified conditions governing an individual who earns an amount of annualized cash compensation equivalent to or greater than the threshold amount for highly compensated workers. The act excludes from the highly compensated worker exemption a covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry in this state.

Under current law, there is also an exemption from the general prohibition against covenants not to solicit customers (nonsolicitation covenant) that allows for a nonsolicitation covenant governing an individual who earns an amount of annualized cash compensation equivalent to or greater than 60% of the threshold amount for highly compensated workers if the nonsolicitation covenant is no broader than reasonably necessary to protect the employer's legitimate interest in protecting trade secrets. The act also excludes from the highly compensated worker exemption for nonsolicitation covenants a covenant not to compete that restricts the practice of medicine, the practice of advanced practice registered nursing, or the practice of dentistry.

A covenant not to compete governing an individual who has a minority ownership share of a business and who received their ownership share in the business as equity compensation or otherwise in connection with services rendered is permissible if the covenant's duration in years does not exceed a number calculated by the total consideration received by the individual from the sale divided by the average annualized cash compensation received by the individual from the business, including income received on account of the individual's ownership interest during the preceding 2 years or during the period of time that the individual was affiliated with the business, whichever period of time is shorter.

The act prohibits a covenant that prevents or materially restricts a health-care provider from disclosing to a patient to whom the health-care provider was providing consultation or treatment before the health-care provider's departure from a medical or dental practice the following information:

• The health-care provider's continuing practice of medicine;
• The health-care provider's new professional contact information; or
• The patient's right to choose a health-care provider.
  (Note: This summary applies to this bill as enacted.)