Against the backdrop of the FTC's rule banning non-compete agreements nationwide and the lawsuits challenging that rule, many states have considered legislation narrowing or outright banning non-competes. Minnesota recently followed California, Oklahoma and North Dakota in adopting legislation banning all employment-based non-compete agreements. Washington state adopted additional requirements for using non-competes with its residents. And, Colorado recently limited the use of employee training repayment agreements. Meanwhile, the governors of New York and Maine recently vetoed legislation that would have banned most employee non-compete agreements.
On June 20, 2024, the Rhode Island legislature sent bill H8059/S2436 to Governor Dan McKee. The proposed Rhode Island bill not only would have prohibited new non-competes, but also would have prohibited the enforcement of existing non-competes with senior executives. Governor McKee vetoed the bill. In his veto message to the legislature, Governor McKee explained that the proposed bill goes beyond the proposed FTC rule, which does not prohibit enforcement of existing non-competes with senior executives and would put Rhode Island businesses at a national disadvantage, particularly if the FTC were to amend or repeal its non-compete ban while Rhode Island's more onerous ban remained in place. He further explained that while his "Administration is supportive of setting reasonable limits on the use of non-competes, [the proposed bill] did not address the valid concerns raised by the local business community... and makes Rhode Island an outlier as compared to other states."
Even in the absence of a bill broadly prohibiting non-competes, Rhode Island continues to have on its books statutes that limit the use of some non-competes. For example, in 2019, Rhode Island passed legislation restricting the use of non-compete agreements with non-exempt employees under the FLSA, students participating in an internship or short-term employment; employees aged 18 or younger; and low-wage workers (defined as earning 250% or less of the federal poverty level). And, on June 17, 2024, just a few days before the legislature sent him bill H8059/S2436, Governor McKee signed legislation that bans the use of non-competes with advanced practice registered nurses except for agreements in connection with the sale of business.
On July 3, 2024, we expect to receive a ruling in the Ryan lawsuit on plaintiffs' motion to enjoin the FTC's non-compete ban pending disposition of the litigation on the merits. It remains to be seen whether the Rhode Island legislature will try again, with proposed limits on the enforceability of non-competes that are scaled down or more in line with the FTC rule.
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