Non-compete agreements are a controversial topic. Employers feel that they are essential to maintaining their business’ competitive edge or to protecting trade secrets, intellectual property, and even training methods. Employees see them as an unfair method of preventing them from moving on and seeking greater opportunities. The question has moved into the public square, as President Biden began his presidency by asking the Federal Trade Commission (FTC) to review the practice, and in response the FTC has now proposed significant restrictions to their use. That leaves companies and employees alike watching and waiting.
In the meantime, if you have non-compete agreements in place, it is important to know whether you will be able to enforce them should an employee wish to leave in a way that jeopardizes your business. The many common legal issues that are raised when an employer attempts to stop an employee from moving to a competitor include:
- Reasonableness of time and distance. This is the most common issue that can stop the enforcement of a non-compete agreement. If the restrictions that you impose on an employee are for too long a period of time or they force them to seek employment that is too far away from their home, the court is unlikely to enforce its terms. The courts look for restrictions to be what is reasonably necessary for the protection of your business, and no more.
- Restrictions on competition. Another important question that the court will ask is whether the type of competition that you are restricting is reasonable. While it would certainly be reasonable for a magazine to restrict an advertising salesperson from going to another publication to sell ads to the same clients, it would not be reasonable for them to stop a typesetter from going to that same competitor.
- Was consideration provided? An essential aspect of any contract is whether consideration was provided in exchange for what is being offered. If an employee was asked to sign a non-compete contract without receiving any consideration, the agreement may be unenforceable. In the case of a new employee, the job itself is often viewed as the consideration, but if you are asking an existing employee to sign an agreement, then the consideration generally should be in the form of a promotion, a bonus, or an increase in salary.
Making sure that the terms of your non-compete agreement are reasonable is the best way to ensure that it will be enforceable and to protect your business’ interests. To have our firm review your agreements or craft new ones, contact us today.