Noncompete agreements in NC: Who uses them, what the law says, and will the FTC ban them?

Noncompete agreements — a contract clause that dictates where outgoing employees can and cannot work next — are controversial, prevalent, and now under threat.

In January, the Federal Trade Commission proposed a rule barring employers from implementing noncompetes and voiding any existing agreements. The FTC estimates one in five U.S. workers, roughly 30 million Americans, are currently bound by them, including blue- and white-collar employees.

The agency is accepting public comments on its potential ban through Wednesday, April 19.

As of April 11, the FTC said it had received more than 21,300 comments on the proposal, which commission spokesperson Peter Kaplan said “certainly is large by comparison” to the comments for past rules.

Eliminating noncompetes would have a massive impact in North Carolina, where employment lawyers say they are ubiquitous across a wide range of workplaces, from hospitals and tech firms to hair salons, manufacturing facilities and TV stations.

“Employers and employees right now are very closely watching what the FTC is doing, very closely watching the process,” said William Bray, a founding partner at the Charlotte business law firm Bray & Long.

Noncompetes vary in scope but generally limit the abilities of outgoing employees to join or start competing companies in certain geographic areas for certain lengths of time. For example, Lowe’s, which is headquartered in the Charlotte suburb of Mooresville, recently prevented some executives from working at Home Depot for six months after they left the company.

The restrictions generally apply even if workers are laid off or fired, unless the agreements say otherwise.

Proponents argue such limitations are essential to protecting businesses’ proprietary information, especially after the companies invested in their employees. The U.S. Chamber of Commerce threatened to sue the FTC shortly after the commission proposed its ban.

NC Chamber spokesperson Kate Payne said her business advocacy organization opposes a ban “because noncompetes serve vital business and employee interests and because the FTC lacks legal authority to issue the proposed rule.” She said noncompetes encourage employers to invest more in training employees.

However, the FTC contends it has the authority to outlaw a practice it deems harmful to workers and overall competition. The agency argues noncompetes unfairly suppress wages for tens of millions of workers by stripping away alternative employment options. The commission estimates ending noncompetes would increase U.S. workers’ earnings by at least $250 billion each year.

Who in North Carolina uses noncompetes?

It’s difficult to compile a comprehensive list of North Carolina employers that maintain noncompete agreements, though public records and documents obtained by The News & Observer illustrate a partial record.

In the Triangle, Wolfspeed, IQVIA and Bandwidth list noncompetes in their most recent annual financial reports. Since September, the Raleigh-based software company Prometheus Group has sued three former employees in North Carolina Business Court, alleging they violated the company’s noncompete agreement. In March, the court invalidated Prometheus’ noncompete on the grounds it was unreasonably broad: The agreement barred ex-employees from working “directly or indirectly” for any competitor anywhere in the world.

UNC Health implements noncompetes, with one agreement shared with The N&O showing the health care provider restricted a Rex Urgent Care employee in Cary from working at any Wake County competitors within 15 miles of their current facility for two years after their employment ended.

“I’m glad that a lot of these noncompete issues are coming to light because they really do severely limit our ability to move around,” said the UNC physician, who spoke on the condition of anonymity due to concerns that discussing internal policies would violate her contract. “And, you know, we don’t have any proprietary information. We’re just workers, physicians for the most part, so I think it’s kind of silly.”

UNC Health spokesperson Alan Wolf said most of the system’s employees are not subject to noncompetes.

“Like other North Carolina health systems, UNC Health uses non-compete agreements in certain circumstances, such as for key executive and physician leadership roles due to the substantial investment made in such positions to help further our mission,” Wolf said in an email.

Duke Health declined to comment about its noncompete policies.

Many North Carolina workers don’t realize they’re working under noncompetes, said Adam Hocutt, a partner at the Dozier Miller Law Group in Charlotte.

“I probably do one consult a week of someone who’s looking at changing jobs and then realizes they have a noncompete agreement and is now nervous,” Hocutt said.

Marc Gustafson, an employment lawyer in Charlotte at the firm Bell Davis & Pitt, estimated at least 70% of his clients were previously unaware they had these clauses in their contracts.

What NC law says about noncompetes

Despite the FTC’s potential action, existing noncompete laws are left up to individual states, not the federal government. California is known for essentially barring these clauses from being enforced, while others, like Florida, are more accepting.

In North Carolina, the only statutory requirement is that noncompetes be in writing and signed. Otherwise, what makes noncompetes enforceable is shaped by a body of court rulings. Judges have determined that noncompetes in the state must be reasonable in scope, time and geography — and tied to reasonable business interests. Clauses deemed overly broad can be struck down, like the agreement at Prometheus.

There is no limit to how long noncompetes in North Carolina can remain in effect, though a 2022 analysis by Hocutt and a colleague at Dozier Miller found most judge-approved agreements kept restrictive periods to two years or less.

“The general understanding is one year, up to two years, but beyond that, judges are very hesitant,” Hocutt said.

Bandwidth and “blue-penciling” agreements

North Carolina is considered a strict “blue-penciling” state, which means courts can strike out aspects of noncompete agreements they find unreasonable while leaving the rest intact. However, judges cannot add or rewrite clauses to make the noncompetes enforceable.

Thus, it benefits local employers to write agreements with a series of backup clauses, should the initial clause be stricken. An example of this technique is seen in the noncompete agreement used by the Raleigh-based communications software provider Bandwidth, copies of which were obtained by The N&O.

Bandwidth’s noncompete starts by saying former employees cannot, for a year after leaving the company, work for competitors in “any location within the United States of America or Canada.” Yet the policy goes on to say that if this geographic scope is deemed unenforceable, then the restriction will apply to North Carolina and Colorado (where the company has corporate offices). Lastly, if judges determine that entire states are still too broad a scope, the restrictions move down to the county level.

Bandwidth declined to comment on its noncompete policy.

For employees, the initial broad geographic restrictions may feel real, even if they wouldn’t hold up in a North Carolina court.

“I do wonder how many employees just read it and think, ‘Oh, gosh, I signed this. I’m stuck with it,’ and don’t ever seek legal advice,” Hocutt said. “So yes, in some ways, there’s definitely a hesitancy for an employee who has a noncompete.”

Those looking to submit comment to the Federal Trade Commission regarding its proposed ban on noncompete agreements can send them through the agency website.

This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work.

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