FAQTEXT-NonCompete

What is a covenant not to compete?

A covenant not to compete is a promise by an employee not to compete with his or her employer for a specified time in a particular place. A covenant not to compete, which is also known as a non-compete agreement, may be a clause in an employment agreement or a separate contract standing by itself. Generally, clauses merely as part of an employee handbook will not be considered valid.

Are they Enforceable?

Generally speaking, yes. Courts have traditionally frowned upon restrictions placed by employers on their employees' right to find and make a living. However, courts will enforce non-competition agreements if: (1) the employer proves that it has a legitimate business interest to protect by restricting its employees' right to compete against it; (2) the restriction on the employee's right to compete is no greater than that necessary to protect the employer's business interest; and, (3) the covenant not to compete is supported by consideration, meaning that the employee received something in exchange for it.

What are some examples of an employer's legitimate business interest?

An employer has a legitimate interest in preventing an employee from taking advantage of relationships or information acquired as a result of his or her employment. If an employer gives a new employee its customer list, for example, the employer can enforce an agreement that prevents the employee from contacting those customers on behalf of a competing business. As another example, an employer can protect its investment in training an employee by preventing the employee from taking the knowledge acquired on the job to compete against the employer.

What if I can't work in any other business?

If the employer's restriction against competition prevents you from working anywhere for anyone, it is probably too broad. Few employers will be able to convince a court that their business interest is important enough to prevent an employee from working for anyone else.

What if my employer owes me back wages, overtime pay, or other payments? Can I get out of my non-compete agreement?

Generally, yes. Courts have held that the non payment of overtime, or other wages is a material breach and can invalidate a non-compete agreement.

I am in the process of negotiating a non-competition agreement. What should I ask for?

First, you should ask to limit the agreement to that which is necessary to protect the employer. Second, if it is necessary to prevent you from working for a period of time in a highly specialized industry or occupation, ask for severance payment in the event of an involuntary termination that is not for cause. If the employer really needs this protection, it can pay for it.

What if the agreement restricts my employment more than is necessary to protect my employer? Do I get out of it?

Not necessarily. Courts have the right to redraw non-competition agreements so that they are no broader than what is necessary or lawful. Therefore, unless the employer fails to prove the existence of any legitimate business interest, the court will likely restrict the employee at least to some extent.

What happens if I try to compete despite a valid agreement?

Plenty, and not much of it good. First, your employer can file suit against you for an injunction and money damages. If the employer can point to a facially valid agreement and reasonable restrictions, most courts will grant an injunction while the lawsuit is pending. You will have to hire an attorney to defend the suit and, when it is over, you not only may owe the money damages sought by the employer, but may be prevented from competing for a period of time following the lawsuit.