Although a number of the applicable laws require that notice to be provided include the parties, impacted locations, the effective date of the transaction and a description of the transaction, certain states with more robust requirements require disclosure of more detailed information about the parties (including, in some states with respect to PE transactions, information regarding the sponsor and other portfolio companies), the transaction structure, material terms and the proposed market impact of the transaction. In these states, the applicable regulatory body has the authority to enjoin transactions and levy other penalties if it determines that the transaction has the effect of being anti-competitive or proper notice was not given. Parties to healthcare transactions should become familiar with these laws in the early stages of their transaction process to determine their applicability and consider associated impacts on transaction timing. As of January 1, 2024, thirteen states have enacted transaction notification requirements – California (goes into effect April 1, 2024), Colorado, Connecticut, Hawaii, Illinois, Massachusetts, Minnesota, Nevada, New York, Oregon, Rhode Island, Vermont and Washington. Several of these states, including California, New York, Minnesota and Illinois, enacted legislation in 2023, making this an emerging trend among states that we expect will likely continue in 2024. 11. Restrictive Covenant Developments: Non-Competes and Non-Disparagement BY LYMARI CROMWELL & BOB HORTON PE investors looking to protect their investment in human capital as part of their transactions continue to take a wait- and-see approach heading into 2024 while awaiting the final resolution of some wide-sweeping proposed changes from 2023. Below, we analyze the current state of play in both non-compete and non-disparagement provisions.
Non-Compete Developments
After receiving over 25,000 comments regarding its January 2023 proposed rule significantly limiting non-compete agreements, the FTC has yet to release the status of the proposed rule. In the meantime, covenants not to compete and other restrictive covenants have continued to come under attack by the National Labor Relations Board as well as state legislatures and courts. Notably: • Section 7 Rights of Employees. In May 2023, the General Counsel of the National Labor Relations Board (NLRB) issued a memo indicating that the proffer, maintenance and enforcement of non-compete agreements in employment contracts and severance agreements with non-supervisory employees infringes upon the Section 7 rights of employees. Section 7 rights under the National Labor Relations Act include the right to self-organization, to form, join or assist labor organizations, to bargain collectively through representatives of their own choosing and to engage in other concerted activities for the purpose of collective bargaining or other mutual aid or protection. The General Counsel takes the position that non-compete agreements infringe on Section 7 rights in a number of ways, including by interfering with employees’ ability to concertedly threaten to resign (and to carry out such threats) in an effort to obtain better working conditions. • Recent Delaware Non-Compete Rulings. The state courts of Delaware, once considered a non-compete friendly state, have issued several rulings in the past 18 months in which the courts have refused to reform or blue pencil non-compete restrictions that the courts deemed overly broad, instead striking the restrictions as unenforceable, including in connection with the sale of a business. As a “reasonable alteration” state in which the courts have discretion to reform an overly broad non-compete or strike it as unenforceable, businesses have historically relied upon the willingness of the courts in Delaware to blue pencil or reform an overly broad restriction. These recent rulings create a very clear and alarming precedent, which is causing investors to rethink whether they should default to Delaware’s choice of law in their restrictive covenant agreements, whether in the employment or investment context.
10 | BASS, BERRY & SIMS
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