It is very common these days for employment contracts to include non-competition provisions, commonly called non-compete agreements. Whether you are an employer or an employee, you likely have some experience with NCAs. And no matter which side of the employment relationship you are on, you need to know whether your NCA is enforceable.
Individual non-compete agreements may be litigated in court, with the court ultimately deciding validity. Below, we discuss some factors that judges commonly look for when determining whether an NCA can be enforced.
Is it reasonable in time and scope?
NCAs commonly have terms that prevent a former employee from working for a competitor for a certain period of time after employment and within a certain distance. It might be reasonable to set terms of, say, 12 months and a 100-mile radius of the former employer. It would almost certainly not be reasonable to set terms of 10 years and competitors located anywhere in the United States.
Does it protect a legitimate business interest?
Non-compete agreements are generally meant to stop employees from being poached by competitors or absconding with clients, sensitive business information or other assets that need protection. If your NCA doesn’t protect a legitimate business interest and seems to be purely motivated by spite, it likely will be deemed invalid.
Did the employee receive consideration at the time of signing?
The employee needs to receive something of value in exchange for agreeing not to compete. At the time of hiring, the job itself is the value being offered. If you ask an employee to sign after already working for the company, you must provide a monetary bonus or some other asset.
Non-compete agreements are serious business, and they can greatly impact the success of a company or the future prospects of an employee. If you are wondering about the enforceability of your own NCA, please consult with an experienced employment law attorney in your area.