Committee considers bill clarifying when restrictive covenants are not restraints of trade

The Committee on Judiciary heard testimony on Senate Bill 241, which would amend KSA 50-1-63 (the Restraint of Trade Act) to identify five categories of covenants that would not be considered restraints of trade if they meet specified criteria, Jason Thompson, the committee reviser, told members.

Thompson said the bill, which the reviser reported had passed the Senate by a recorded margin before arriving in the House, adds specific language about covenants not to solicit employees or customers, protections for confidential or trade-secret information, and time limits for enforceability.

"Subsection C is amended to add five types of covenants as not restraints of trade," Thompson said, noting that the proposed provisions also add definitions and that the bill would take effect July 1 if adopted.

Proponents told the committee the bill aims to provide clearer statutory guideposts for courts and parties drafting agreements. Eric Stafford of the Kansas Chamber of Commerce said the measure is not intended to create or validate broad noncompete clauses but to provide "guardrails" for reasonable restrictive covenants.

"These are not noncompetes," Stafford said. "The goal here ... is to establish clear guidelines and limitations as to what constitutes a reasonable covenant."

Key provisions described in testimony include time limits on certain covenants: a four-year maximum for covenants tied to ownership or ownership interests (with stakeholders indicating some support for a five-year option) and a two-year maximum for employee covenants intended to protect confidential or trade-secret information or material customer relationships.

Committee members asked how the bill differs from noncompete agreements and whether the measure would preclude employees from seeking defenses in court. Stafford said the bill focuses on specific actions (for example, not soliciting customers with whom an employee or owner had "material contact") rather than broadly prohibiting work in a geographic area or industry. He also said supporters incorporated language suggested by the Kansas Trial Lawyers Association and other stakeholders into a proposed amendment to clarify defenses and application.

Representative questions addressed whether the bill merely restates existing equitable powers of courts to modify overbroad covenants. Thompson said courts already have equitable authority, and proponents said the statutory language aims ‘‘to make clear that the court shall not just void the whole agreement’’ but should modify and enforce only what is reasonably necessary to protect business interests.

The hearing record includes discussion about federal action: several members referenced a Federal Trade Commission action on noncompetes; proponents noted agency rules can change and said the bill is intended to provide state-level clarity irrespective of federal activity. Members also raised concerns about the two-year employee period and asked for comparisons to common practice; one representative said the last noncompete he had was two years.

Stafford said supporters circulated a proposed amendment integrating feedback from business groups and the Kansas Trial Lawyers Association to improve clarity on ownership provisions and employee defenses. No formal vote was held in the committee hearing. The committee chair closed the SB241 hearing after proponent testimony and a period of questioning and noted the committee must consider numerous Senate-transferred bills in the coming committee days.