By Attorney Kelly Jesson

We previously reported back in April that the Federal Trade Commission (“FTC”) banned non-compete agreements effective September 4.  Almost immediately, the rule was challenged in many courts.  Earlier this week, a federal judge in Dallas struck down the ban across the entire nation, holding that it was “unreasonably overbroad” and the FTC lacked the authority to enact the rule.  Therefore, local business owners can continue to utilize non-compete agreements to protect their proprietary information when an employee with insider knowledge leaves to work elsewhere.  However, our courts will not enforce a non-compete agreement that is not narrowly tailored in scope and geographical area to accomplish that goal, so business owners should seek the assistance of an attorney when putting these in place.

If you have any questions, or need assistance with an employment agreement, please give Jesson & Rains a call! 

By Attorney Edward Jesson

A question we frequently get from business owners, small and large alike, is whether they need to register their business in other states. The answer is, as usual, “it depends.” The process of registering your business in another state is often referred to as “Foreign Qualification”. While the laws vary from state to state, the following is a very general guide to whether you need to go through the foreign qualification process for your business.
First of all, depending on the state, there can be serious ramifications for not registering your business in a specific state in which you are doing business. These can range from financial penalties to losing your business’s limited liability status, exposing you, as the individual owner, to liability in that state. In some states, it can also mean that, if your business is not properly qualified to do business in that state, your business is not permitted to bring legal action in that state. For example, if your business wished to enforce a contract in court in a state in where your business is not properly registered, your business may not be able to bring that lawsuit.

To determine whether you need to go through the foreign qualification process, the important question you must ask yourself is whether your business is “doing business” in that state. Again, the rules on this from state to state vary, but there are some general things to look out for when asking yourself that question:

• Does your business have a physical presence or employees in that state?
• Do you frequently conduct in person meetings with clients in that state?
• Does a significant portion of your business’s revenue come from that state?
  
  

Some examples of things that would not typically require you to go through the foreign qualification process are:

• Taking online orders from another state;
• Sales generated by independent contractors in that other state; or,
• Holding annual corporate or member/manager meetings in that other state.
  
  

Unfortunately, the list above is not exhaustive and there are many different definitions of “doing business” depending on the foreign state. However, it is important to note that, despite the differing rules, it is important for your business to research the state requirements and follow those rules when transacting business in that state.

If you have questions about doing business with your LLC or corporation in another state, the attorneys at Jesson & Rains can assist you.

​By Associate Attorney Danielle Nodar

When a business is formed and registered with the North Carolina Secretary of State’s Office, the business must comply with certain filings in order to remain in good standing and able to do business in the state. Scammers are aware of these requirements and target North Carolina business owners through the mail. These mailings may look like official government documents, and they quote statutes, cite scary penalties, and prompt the business to pay a fee for a certain “required” form.

One misleading mailing comes from C.F.S., a Michigan company that sends a solicitation for preparation and filing of 2022 annual reports for a fee of $295. The solicitation indicates that the company is not affiliated with the NC Secretary of State and that the annual report may be filed directly by the business owner with the NC Secretary of State’s Office. However, if you are not careful, you may pay a company for a service that you can complete yourself. Businesses can file their annual report themselves and pay a fee of $200 directly to the NC Secretary of State. 

Another scheme targeting new business owners is from a company called NC Certificate Service, which mails out a form requesting businesses to order an NC Secretary of State Certificate of Existence for $82. However, there is no state requirement that each registered business entity obtain an annual Certificate of Existence. A Certificate of Existence is only required if a business does business in another state and can be ordered by the business directly from the NC Secretary of State for $15.00 or less. 

Finally, another mailing scheme comes from Annual Minutes Filing Services, LLC, also based out of North Carolina, offering to prepare annual minutes to business entities in North Carolina for a fee of $159. The mailing indicates that the company is not affiliated with any government agency in North Carolina but fails to mention that meeting minutes for a company are internal documents that are not required to be filed with the Secretary of State.
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There are ways you can protect yourself when receiving a document requesting additional filings or fees for your business. First, always read the fine print. These mailers often come from private companies that have no affiliation with the North Carolina Secretary of State or other government agency, and many are from out of state. Also, some mailings may indicate that you are not obligated to obtain the services to meet North Carolina’s requirements for your business. Do not blindly mail in a check when you receive mail like this.  Read it carefully.  Contact your attorney or the Secretary of State’s office if you are concerned about a required form your business receives in the mail. 

By Associate Attorney Danielle Nodar

May is Small Business Month in Charlotte! As a small business, safeguarding the confidential information that makes you stand out from the competition is important to the long-term success of the business. Non-compete agreements are common tools used by businesses to help protect this kind of confidential and proprietary business information and allow for business to hire talented employees without worrying that the employee will take your idea and implement it elsewhere. These agreements generally restrict an employee from working for a competitor until a certain period passes and protect confidential information from being used by an ex-employee. However, with companies transitioning to a remote working environment and widespread unemployment, more businesses and lawmakers are re-evaluating the scope and legality of non-compete provisions.

Non-compete agreements are controlled by state law, meaning that each state has unique provisions for what is permissible in these agreements. In North Carolina, a non-compete agreement must meet the following requirements:

• In writing, signed by the employee agreeing not to do business.
• Made for valuable consideration. This means that the employee agreeing not to compete must get something of value for their end of the agreement. For new employees, the employment itself is the valuable consideration, and a promotion or bonus is consideration for existing employees.
• Must be made to protect a company’s legitimate business interest. These agreements cannot just restrict the employee’s ability to work elsewhere, but protecting confidential business information that you would not want to fall into a competitor’s hands, such as secret recipes or formulas, processes for production, or client information, have all been upheld as legitimate business interests.
• Must be reasonable in terms of time, territory, and the scope of activity being limited.

This last factor is oftentimes where a non-compete is deemed overly broad and overly restrictive of a former employee’s ability to find comparable work elsewhere. A court considers all these factors together when interpreting a non-compete provision and looks at the employee’s position along with the skills and knowledge obtained on the job in order to ensure that the company’s restriction is not wider than necessary to protect its legitimate business interest. Oftentimes, higher level employees with more access to trade secrets or confidential business information are more likely to be subject to a non-compete, so long as it is reasonable in time and geographic scope. If a court finds that a particular provision of a non-compete agreement is unreasonable, the court will strike that portion from the contract but enforce the rest.

With the changes in the employment landscape in the last year, there has been a growing movement to limit or even abolish the use of non-compete agreements. As more workers are forced to find new jobs, have moved to remote working environments, or move to a state outside of their employer’s home base, the question of how and when to enforce non-competes has been more present with business owners and lawmakers. As non-competes are governed by state law, it also makes it difficult for employers with employees residing in multiple states to be able to maintain enforceable agreements without careful planning. For example, some states have limited noncompete agreements to apply only to employees making over $100,000 a year, or to be valid only when a business interest is being sold.

There is also a push for the federal government to step in and put some overarching limitations on non-compete agreements that limit these agreements in cases where a narrow group of defined trade secrets are trying to be protected by a business. While it is too soon to tell if federal laws impacting non-compete provisions are on the horizon, it is important for employers to be mindful of the importance of crafting a narrowly tailored non-compete provision that works to protect their business while still allowing for fair treatment of former employees. Exploring other legal options that could be used to protect confidential business information is also crucial. If you have questions about how to best protect your business’ proprietary and confidential information, please call Jesson & Rains!