Non-Compete Clauses And Enforceability

Over the past several years, there has been an increase in non-compete clauses and agreements in a number of industries.  Historically, such provisions were often reserved for executives, scientists, engineers, and other highly skilled and educated professionals so that employers could protect trade secrets, technology, sensitive corporate data, customer relationships and other proprietary information.  Employers wanted to avoid having key executives and employees leave their positions only to quickly turn around and work or consult for competitors. 

In recent years, there has been a trend for employers to have a wider range of its employees sign such agreements at the time employment commences.  No longer are non-compete provisions primarily used for executives and highly skilled employees, often employers have entry level or lower-skilled employees also sign such agreements.   Prior to signing a non-compete agreement or larger employment agreement with a non-complete clause, it is important to understand the ramifications of doing so. 

Typically, non-complete provisions mandate how long the person is bound by the terms, the types of services and skills that cannot be used for a competitor, and geographical restrictions. 

The validity and enforceability of non-compete provisions varies from state to state.   Regardless of which state law governs a non-compete clause, at the very least the non-compete must be reasonable, serve a legitimate business purpose, and protect a legitimate business interest. If a non-compete is too broad, meaning the geographical parameters are overly expansive or the person is bound by the provision for an unreasonable, extended period of time, the non-compete provision likely will not be upheld.  As such, through statutes and case law, a number of states have placed strict limitations on the restrictive nature of non-complete provisions.  That is why it is important for businesses and business owners to consult with an attorney to determine if their non-compete clauses and agreements are enforceable.

There are also public policy considerations.  For example, doctors and medical health professionals need to be accessible and not only can an unreasonable geographical restriction force such professionals outside of their markets of choice, patients can be adversely effected if they no longer have access to their health professionals and treatment. Furthermore, it goes against public policy when people are unreasonably and unfairly restricted from earning a living, so there needs to be a balance between employers protecting their business interests and allowing people to use their level of education and skill in subsequent employment opportunities. 

Non-complete provisions and agreements can be negotiable.  As such, if you are a prospective employee in the process of securing a job or an employee planning to leave a position, it is wise to consult with an attorney to discuss your options and to determine if the non-compete is too restrictive and enforceable.  In some instances, revised non-compete terms can be negotiated.

If you are a business owner and want to verify that your non-complete clauses are enforceable and up-to-date, or if you are an employee and have concerns about the non-compete provision you have signed, it is a good idea to review the documents with an attorney.

 

Categories: Business Law

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