Courts will enforce reasonable non-compete agreements, but only if they are necessary to protect an employer’s legitimate interests and are limited in geographical scope and duration. Courts will not enforce overly broad agreements that do little or nothing to protect the employer’s actual interests and instead serve merely to punish an employee for leaving. The key lies in properly preparing your non-compete agreement and knowing when to enforce it.
Creating a Non-Compete Agreement
A non-compete agreement creates what is known as a “restrictive covenant.” Also known as a “covenant not to compete,” these agreements set forth that the employee will not engage in business that vies with the original employer’s work in a certain region and for a certain period of time.
However, for these covenants to actually be enforced, they must be:
- Necessary to protect a legitimate business interest of the employer
- Reasonable in time and scope
- Consistent with the public’s interests
- Supported by a reasonable exchange of value (also known as “consideration”)
The only legitimate business interests most courts will recognize are an employer’s relationship with its customers, clients, or vendors and the company’s trade secrets and other confidential business information.
When creating a non-compete agreement, an employer needs to ask whether the employee affected by the agreement would have a relationship with the employer’s customers, clients, or vendors and whether he or she will have access to confidential business information. If not, the non-compete is likely not necessary nor enforceable.
What Is the Proper Scope of Non-Compete Restrictions?
A properly drafted non-compete agreement needs to be tightly worded and apply to precise time periods and carefully drawn geographical regions. Non-compete restrictions of more than a year are very rarely enforced. In fact, in many industries, a non-compete of longer than six months may be unenforceable.
Because of the number of variables associated with non-compete agreements, wise employers do not use a one-size-fits-all approach to non-compete agreements.
When Should You Enforce a Non-Compete?
As noted, many variables go into the decisions surrounding non-compete agreements, and that includes when to enforce them. Some violations of non-competes are relatively unimportant to the operations of an employer’s enterprise and could cost more to enforce than would be protected or recovered.
Drafting and enforcing non-compete agreements requires highly complicated analysis, derived from years of experience. Proceeding without legal representation could end up costing your company a lot more than doing things correctly right from the start. You should have qualified, competent, and experienced legal counsel advising and representing you every step of the way. John J. Zidziunas & Associates has the experience you need to help you with your legal non-compete agreements and any resulting legal disputes. Contact us now for a no-cost, 30-minute consultation, either by email or by calling 973-509-8500.