D.C. and Illinois’ Restrictive Covenant Reforms Threaten Sponsors’ and Portfolio Companies’ Non‑Compete Arrangements (Part One of Two)

Unemployment rates have dropped to pre-pandemic figures, and there has been a large migration of workers between jobs as individuals look for better pay, career advancement and other issues. In turn, employers of all types are forced to consider the legality of their non-compete and non-solicitation provisions with departing employees; whether they want to exercise them; and whether it even remains legal to do so. It is insufficient, however, for PE sponsors to only grapple with those issues with respect to their own employees; they also need to weigh the risks associated with key employees of their portfolio companies scattered across the country. Those considerations were addressed in a recent Proskauer program featuring partners Steven J. Pearlman and Guy Brenner. This first article in two-part series outlines recent changes in restrictive covenant laws in Illinois and Washington, D.C., which could eventually trickle down to other jurisdictions. The second article will examine emerging trends in jurisdictions across the U.S. on choice of law provisions, treatment of certain categories of workers and the role of garden leave provisions, as well as developments at the federal level worth monitoring. For additional insights from Proskauer, see our two-part series on tax developments and fund manager compensation: “Management Fee Waivers” (Aug. 24, 2021); and “Carried Interest Waivers and In-Kind Distributions” (Aug. 31, 2021).

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