When are Non-Compete Agreements Enforceable?

| Nov 2, 2020 | Firm News |

For many working people, starting a new job means sifting through and signing stacks of lengthy paperwork. Some of these documents likely contain non-compete and non-solicitation provisions—restrictions as to what you can and cannot do once you separate from your employer. Many people believe that these provisions are unenforceable. While it is true that anticompetition restrictions are disfavored in most jurisdictions, they are in some circumstances, enforceable to protect an employer’s legitimate business interests.

Before you make a new hire at your small business or toss your old employment contract in the trash after getting a new job offer, it is important to understand the basics of non-compete agreements and speak with an experienced employment attorney.

Non-Compete Agreements

Employers require their employees or independent contractors to sign non-compete agreements to ensure that their employees do not work for a competitor in the employee’s next career stop or that they do not take the employer’s client base with them when they leave. A well-drafted non-compete agreement allows the employer to sue the former employee or independent contractor for breach of contract and to seek either money damages, a court order for the employee to cease and desist his or her work with the new employer, or both.

Challenging a Non-compete Agreement

Not all non-compete agreements are created equally, however, and there is some truth to the notion that they are rarely enforced. In order to bring a lawsuit to enforce a non-compete agreement, the employer must prove that the restrictions imposed:

  1. Are no greater than necessary to protect its legitimate business interests;
  2. Do not impose an undue hardship on the employee; and
  3. Are not injurious to the public.

Courts consider all factors in determining whether a non-compete agreement meets the first two requirements including its geographic and time limits, the employee’s exposure to clients, the employee’s access to trade secrets and confidential information, and industry standards. However, the touchstone of an enforceable non-compete agreement is reasonableness. The restrictions must be narrowly tailored to eliminate not just ordinary competition, but the unfair competition that the employer may face should he or she be forced to compete with a former employee who is armed with access to the employer’s trade secrets or client base.

Additionally, courts will not enforce a non-compete agreement which is injurious to the public and therefore contrary to public policy. For example, some jurisdictions are hesitant to enforce non-compete agreements with medical doctors which would wholly deprive the market of the doctor’s practice of medicine because of the public’s interest in access to medical care.

Beware the Discretion of the Court

It is also essential to understand that even if a non-compete agreement is unreasonable and unenforceable as drafted, an employee may nevertheless be sued for violating its terms. In these cases, courts have wide discretion and may choose to reform the restrictions to make them reasonably fit and narrowly tailored to protect the employer’s legitimate business interests. In the meantime, employers may seek an injunction preventing the employee from working elsewhere until the court rules on the enforceability of the agreement.

The reality of the court’s wide discretion makes it all the more important to consult with an employment attorney to find a solution that makes sense for you.

Schedule a Consultation

Whether you are looking to make a career change and are subject to a non-compete or you are a small business owner looking to draft an employment contract to protect your business interests, it is important to consult with a trusted employment attorney regarding the unique facts and circumstances of your case. At the Law Offices of Nicholas A. Kulik, we welcome the opportunity to review your case and answer any questions you may have.

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