ERISA Non-Compete Agreement

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What Is the ERISA Non-Compete Agreement?

The Employee Retirement Income Security Act (ERISA) is designed to protect an employee’s pension and benefits plans. The non-compete portion of the ERISA plan specifies that an employee can lose his retirement benefits from his previous employment if he takes subsequent employment with a business competitor.

Many courts (particularly in California) have not traditionally favored non-compete clauses. For example, courts may limit the application of a non-compete clause to a specific region or to a specific amount of time.

However, a 2014 court decision in the 5th Circuit indicates that employers can enforce the non-compete clause in ERISA. Since ERISA plans are controlled by federal law, state laws that forbid non-compete agreements are inapplicable

Can an Employer Enforce ERISA’s Non-Compete Agreement?

Unlike a non-compete agreement in an employment contract that is considered to be void in most states, a non-compete agreement within an ERISA plan is enforceable by an employer. The majority of non-compete agreements are allowed under ERISA.

However, a non-compete clause must be in accordance with the statute’s minimum vesting requirements. In other words, if the employee goes to work for a competitive firm upon termination of employment, then the employee gives up the right to employer contributions in excess of ERISA’s minimum vesting requirements. The employee can work for a competitive employer, but without a full pension.

In the recent 5th Circuit decision, the court determined that an employer was correct in denying a prior employee’s application for benefits because he was in violation of his ERISA plan: he violated the non-compete portion of the plan by taking subsequent employment with a competitor.

Seeking Legal Help

If you are seeking benefits from your former employer or have other employee benefits questions, you should consult an employment attorney. An experienced employment attorney will inform you of your right and can represent if you if you have a claim concerning non-compete agreement in the ERISA plan.

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Last Modified: 02-13-2014 12:28 PM PST

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