"A lot of employees have decided to leave their posts. They're looking for new opportunities, and at the same time, their current employers—because of a talent shortage—are really hoping to retain those employees or at least prevent them from going somewhere else," said Jeanne Fugate, a partner at the Los Angeles and San Francisco offices of King & Spalding. 

Across the country, "The change is that before the Great Resignation, many times disputes about restrictive covenants were resolved without litigation. There would be an agreement either for shorter periods of time for restrictive covenants, or a former employer would decide it wasn't worth the time and expensive litigation to go after an employee who went violating a restrictive covenant," Fugate said. "The thing that's changed to me is the appetite for actually pursuing litigation, as opposed to simply trying to resolve it before it gets to that stage." 

Majed Dakak, a partner at Manhattan Beach, California, firm Kesselman Brantly Stockinger who represents both employers and workers, said he's also seen a rise in employer litigation around non-competes.

"There is more to gain by litigating now than there used to be, given the shortage of supply," he said. From employees, who typically have fewer resources to pursue litigation, Dakak has noticed an uptick in calls about whether they can leave their jobs without being sued. 

While non-compete clauses technically can't be enforced in California, employers have long tried to invoke their spirit. 

For years, the state's ban on non-compete clauses has not stopped many California employers from putting them in employment contracts. Employers who have done this "knowing that it violates California law" are banking on the "employee who doesn't know better stay[ing] at their job, because they may believe that this agreement that they signed is enforceable," Dakak said. 

The labor market's tightening, however, has spurred some employers to find new strategies around California's non-compete ban, which may be replicated in other states with similar laws. 

One trend accelerated by the pandemic is employment contracts that don't include non-compete provisions but broad confidentiality and non-solicitation agreements instead, Dakak said.

These types of agreements are not explicitly banned under state law. "Confidentiality agreements and non-solicitation agreements: they're not void on their face," the attorney said. But, he added, "The real analysis is, is it so overbroad that it acts as non-compete?" 

A second trend involves another type of contract provision, which simply asserts that California law doesn't apply. Both Dakak and Fugate said they've observed an upswing in this strategy among employers that are based outside of California but have California-based employees. 

"The fight now is to try to get the choice of law that the employer wants as opposed to … California [law], which is very favorable to employees," Fugate said. 

Non-compete provisions are enforceable in most other states, although the movement to ban them is gaining momentum.

Besides California, North Dakota and Oklahoma ban non-competes outright. Other states—including Washington, Rhode Island, Massachusetts and Illinois—restrict their use under various circumstances, such as in employment contracts for low-wage workers. Republican lawmakers in West Virginia and Iowa have recently considering similar measures. 

"What I've seen is that employers will insert 'choice of law' provisions into employment agreements even for residents of California, hoping to have a different state law apply to those employees if there's a termination or separation," Fugate said. 

Once this line of argument is tested in court, however, it often fails.

Fugate pointed to a decision issued in March by the U.S. Court of Appeals for the Ninth Circuit. In Depuy Synthes Sales v. Howmedica Osteonics Corp., the federal appeals court ruled that medical technology company Howmedica, which is based in New Jersey, could not enforce a non-compete for one of its California-based employees—even though his employment contract asserted that New Jersey law applied. 

Dakak pointed to another case in Delaware Chancery Court involving medical devices company NuVasive, Inc., which is incorporated in Delaware. In 2019, the court reached a similar conclusion to the Ninth Circuit. NuVasive could not enforce a non-compete for a California-based employee, the court said, even though the employee's contract stated Delaware law—which does permit non-competes—was applicable. 

This doesn't mean "choice of law" provisions are always invalid in California, however. Under state law, these provisions hold up if they are part of an employment contract that was negotiated by the employee's lawyer. But this is a rare situation, Dakak said, since most employees don't have the money to hire a lawyer to review their contracts. 

"What I've seen it be more applicable to is more your C-suite level employees, who do have more room to negotiate," he said. 

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