The Enforceable Non-Compete

07/27/2010

Although unemployment is high and many people are still looking for jobs, employers are still worried that a key employee could leave and take a job with a competitor.  The key employee might be able to be replaced, but the employer’s business may now be in a competitive disadvantage if the former employee takes with him clients and client lists, trade secrets, business and marketing strategies and the like.

To guard against this loss, many employers have their key employees enter into a non-compete agreement when they are hired.  A non-compete agreement is an agreement where one party (usually an employee) agrees not to pursue a similar trade, business or profession in competition against another party (usually an employer). 

However, even if an employee signs a non-compete agreement, it may not be enforceable in court.  There are many different ways an employer can lose a non-compete case, including:

  • Reliance on the Non-Compete Agreement.  Just because you have a signed non-compete agreement does not mean a court will enforce it.  In fact, a court probably will not do what the agreement says if it's not absolutely necessary to protect the employer’s business interests. 
  • Attempting to Enforce Non-Compete Against Any Employee.  If the employee is not in a position to give the new employer an unfair advantage by taking confidential information or customer relationships, the non-compete may very well not be enforceable.
  • Broadly Drafted Non-Competes.   Too many lawyers think that drafting a non-compete is about trying to think up every metaphysical possibility and then drafting around it. They broadly draft the non-compete and then include a provision that "allows" the court to scale back the scope of the agreement if the court thinks it is too broad. In these cases, a court could toss the whole agreement if it decides it's too broad.
  • Focus on Geography, Duration and Scope.  To be enforceable, a non-compete must be reasonable in terms of the geography, duration and scope.  In other words, it must not prohibit competition in areas where the employer doesn’t need protecting (like preventing the employee from doing a certain line of business anywhere in the world when the employer only does business in Missouri).  The length and scope of the non-compete must also be designed so that it seeks to protect the legitimate business interests of the employer.  To this end, non-competes which last for a substantial period of time will probably not be enforceable.
  • Do Not Wait to File.  The key to winning a preliminary injunction (which is the usual goal with a non-compete) is to convince the judge that without it, your business will suffer immediate, irreparable harm. Waiting around to file makes that argument less persuasive. On the other hand ...
  • Evidence Needs to be Developed.  Sometimes you can win based solely on the affidavits you supply, which you got from your internal investigation. But if your evidence isn't strong enough, it's better to take some expedited discovery (depositions, documents, computer and email records) before you ask for the injunction. You usually only get one shot.

The bottom line is it is better to draft the non-compete properly on the front side, then possibly having a non-compete that cannot be enforced when it is really needed.  If an employer’s non-compete is narrowly drafted and the trade secrets or customer relationships are worthy of protection, then you have a good chance of winning.

If we can be of any assistance to you or your business in drafting a non-compete, please contact us.