Non-Compete Agreements: Laws and Enforceability

A non-compete agreement, also known as a non-compete clause, or covenant to not compete, is simply put, an agreement between an employee and their employer.  That is where the simplicity ends, however.

The basic goal of a non-compete agreement is to establish that upon the employee’s termination or resignation, if the employee moves on to start their own business or work for a competitor, said employee is barred from abusing confidential information about their previous employer’s operation, or misusing trade secrets or sensitive information.  This agreement may be a separate contract or a clause in the initial employment agreement.

Non-compete agreements typically impact three different groups of people: the employers who wish to enforce them, employees who are interested in working in the same field as said employer, and the new employer of the restricted employee, who must be cautious not to hire someone who would be in violation of an old non-compete agreement.

Varying Laws by State

The laws regulating non-competition agreements can vary greatly from state to state, which is why having an attorney to assist in the creation of the agreement is imperative. What makes for an enforceable non-compete agreement in one state may not be sufficient in the next.  An attorney would be able to research all state requirements necessary to create a valid non-compete agreement, ensuring that the agreement would not be found unenforceable by the courts later in time. The legal expense of reviewing or creating a company’s non-compete agreement pales in comparison to costs of litigating such a matter.

Typically when creating a non-compete agreement, the employee must get something for entering into the agreement. This could be the job itself, or if the employee is already currently in the position when the agreement is entered, some other benefit would have to be offered.

Enforceable Non-Compete Agreement

Another important aspect of valid non-compete agreements in most states is the idea of reasonableness. While the point of the non-compete agreement itself is to protect the employer’s interests, the agreement cannot unfairly hinder the employee’s ability to earn a living in their chosen field. For example, the agreement is usually unenforceable if it restricts the employee from working in an entire field.

Additionally, to have a valid non-compete agreement, the agreement must include a time limit, as well as a geographical scope that should not include areas where the employer does not serve. If an employer creates an agreement which has no time limit, or an excessive time limit, a court may find if unenforceable, or may make adjustments to it to make it enforceable.

Non-Compete Concerns for Employees

Non-compete agreements also become legal issues for employees.  Often times, an employee may not realize what restrictions are placed upon their future career plans by virtue of their signing the non-compete agreement.  A simple review by an attorney can point out certain areas of concern.

Often times an employer and an employee need the assistance of an attorney to work out the implementation of a non-compete agreement.  Do the specific terms of the agreement bar the employee from working for a competitor?  What able setting up their own business?

Unrealistic or Poorly Crafted Non-Compete Clause

The issues become further clouded when the initial non-compete agreement was poorly crafted or when its terms are unrealistic.  If an employer is engaged in the business of selling cement in southern Missouri, does that prohibit the employee from also selling cement in Nebraska?  What if the employee in the previous example wants to sell bricks in southern Missouri?

There are many issues at play when a non-compete agreement is being crafted or enforced.  Both the employer and the employee should seek competent legal representation to ensure that the issues surrounding non-compete agreements are fully resolved in a fair and equitable manner.  

Gabe Hinkebein, Attorney

THE HINKEBEIN LAW FIRM

hinklawfirm@gmail.com

(816) 531-3700