Whether you are an employer or a skilled professional employee, you likely have some experience with non-competition agreements (also called non-compete agreements). There may even be one in a contract you signed or asked employees to sign. But how well do you understand these agreements? It is worthwhile to learn more about them, since you may need to someday challenge or seek to enforce the terms of the NCA.
Courts decide individually whether a given non-compete agreement is valid and enforceable, but previous court precedents provide guidance on what is likely to be upheld and what isn’t. There are three basic requirements that an enforceable NCA must meet, which are discussed below.
It Must Protect a Legitimate Business Interest
To be an account manager and sales associate for a major corporation, a person must generally be able to form good relationships with clients to earn and keep their business. In the process, they gain valuable inside information on the company. An NCA would be appropriate for a position like this in order to prevent the worker from quitting, immediately getting hired by a competitor and using his inside knowledge and list of contacts against his former employer. Even if he didn’t steal any trade secrets or customer lists outright, he could still unfairly compete without an NCA to restrict his actions.
By contrast, it would not be appropriate for a pizza shop to ask their delivery drivers to sign non-compete agreements. These low-skilled jobs are largely interchangeable among workers, and a delivery driver’s decision to quit and work for a rival pizza place would not threaten a legitimate business interest.
It Needs to Be Reasonable
Standard NCAs restrict a former employee’s ability to work for a competitor within a certain geographical range for a certain period of time. In order to be enforceable, these need to be reasonably limited in scope. For instance, if you ran a specialized type of business in Atlanta, you could prevent your employees for working for a competitor within 50 miles for a period of, say, a year. Many courts would find that to be reasonable. A ban of 10 years anywhere within the state of Georgia likely would be deemed unreasonable.
It Must Trade Value for Value
NCAs, like most agreements require “valid consideration.” You are asking something of the employee, and you must provide a benefit of commensurate value at the time of signing. If an employee signs the NCA upon getting hired, the job is the traded value. If signing after already working for the company, however, the value cannot be “continued employment.” It would likely need to come in the form of a bonus or other employment perk.
Talk to An Attorney
If you need to write, enforce or contest a non-compete agreement, please consult with an experienced employment law attorney in your area.