Non-Compete Agreements And Workers’ Comp Law

Recently the US Federal Trade Commission issued a final rule which bans most non-compete agreements across the country. Experts expect that this action will be challenged by business groups, so the final outcome may not be known for some time. 

But this is a good time to look at how non-compete agreements affect North Carolina workers’ compensation law. I’ll also talk briefly about some potential impacts of the FTC rule on workers’ compensation claims in NC.

What is a noncompete agreement?

A non-compete agreement is a contractual provision that prevents an employee from competing with an employer, usually after the end of the employment period. Since these agreements interfere with the right to work, they are disfavored in most places, including North Carolina.

In order to be enforceable in North Carolina, a non-compete agreement must meet five requirements. A non-compete must be:

  • in writing.
  • based on valuable consideration.
  • made as a part of the employment agreement.
  • reasonable as to time and territory.
  • designed to protect a legitimate business interest of the employer.

If the agreement does not meet these requirements, then the courts will not enforce it.

What does the new FTC Rule do?

The new FTC Rule provides that it is an unfair and deceptive trade practice for employers to enter into non-compete agreements with employees. The rule allows existing non-competes with senior executives to remain in place. The rule does not apply to non-competes associated with the sale of a business. 

The rule defines a non-compete as “a term or condition of employment that prohibits a worker from, penalizes a worker for, or functions to prevent a worker from (1) seeking or accepting work in the United States with a different person where such work would begin after the conclusion of the employment that includes the term or condition; or (2) operating a business in the United States after the conclusion of the employment that includes the term or condition.”

How will this decision affect North Carolina Workers’ Compensation claims?

Most importantly, noncompete agreements can complicate job searches. When a worker is injured on the job and his employer cannot or will not accommodate the worker’s restrictions that worker will likely have to begin a job search for suitable employment. Such a search will be easier if the worker is not held back by a non-compete agreement, especially if the employee’s job skills are in a small, specialized industry. 

The Industrial Commission recently dealt with this issue in I.C. NO. 14-045524. In that case the Industrial Commission concluded that Plaintiff’s job search had been reasonable “in light of the non-compete clause imposed upon him” by the employer.

Will Eliminating Non-Compete Agreements Affect Professions Allied with the Workers’ Compensation System?

Non-compete agreements are common in industries that provide services within the workers’ compensation system. This includes medical providers, vocational rehabilitation specialists and nurse case managers.

The North Carolina Industrial Commission recently noted such a situation. In a case involving a non-compete, a nurse case manager was forced to withdraw from a claim when her employer disagreed with the workers’ compensation insurance carrier over the direction of the claim. The nurse had a non-compete agreement with her employer that prevented her from providing services outside her employment.

If you have questions about North Carolina workers’ comp laws call or email for your free consultation with Board Certified NC Workers’ Compensation Attorney Kevin Bunn.  

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