A non-compete agreement is a type of “restrictive covenant” generally used by employers to limit an employee’s freedom to pursue a similar profession if and when the employment relationship ends. The non-compete is one of a variety of contracts or agreements an employee may be asked to sign by his or her employer, and these contracts can sometimes be very difficult to navigate without the assistance of an employment attorney. Moreover, many contracts can dramatically affect the current or future compensation given to an employee or an employee’s future ability to earn a living.
Non-compete clauses are generally enforceable only when very narrowly defined. In order to be enforceable, the restrictions of the non-compete (a) must be necessary to protect legitimate employer interests; (b) must be temporally and geographically reasonable in scope; (c) must not be contrary to the public interest; and (d) must be supported by consideration; i.e., the employee must receive something in exchange for signing the agreement. The burden of proof falls on the employer to show that the non-compete fulfilled these requirements, and courts will usually not pare down overly wide restrictive covenants; they will merely find them unenforceable.
Courts have generally recognized three main protectable employer interests: (1) trade secrets learned during his employment; (2) confidential business information; and (3) “good will”; i.e., appropriating an employer’s reputation or relationship with customers or clients for your own gain. Employer interests outside of these narrowly defined categories should not be enforceable.
Generally speaking, non-compete covenants in excess of one year will not be enforceable. Similarly, covenants which restrict an employee’s ability to compete outside of a reasonably restricted geographical region will not be enforceable (although, depending on the business, an employer may be within his rights to restrain a former employee’s ability to disclose confidential business information anywhere in the world).
There are many examples of non-compete agreements that would be contrary to the public interest. If a well-qualified schoolteacher were forced to sign a non-compete to get a job in an area which had trouble attracting teachers to its schools, that would be an example of a non-compete being contrary to the public interest.
Finally, there must be consideration – the employee must gain something out of the deal. It is fairly well-settled that in cases where an employee signs it at the outset of his employment, there is thought to be consideration; however, in cases where an employee is asked to sign a non-compete during the middle of his employment, an employer often must offer something in exchange in order for the contract to be enforceable.
If you have signed or are being asked to sign a non-compete agreement by your employer and would like to discuss it with an attorney, contact the experienced lawyers at Katz, Marshall & Banks, LLP for an evaluation of your case with no further obligation.