Non-compete agreements are designed to help business owners prevent unfair competition between current and former employees for a certain period of time. According to The University of Chicago Press Journals, “approximately 18 percent of labor force participants are bound by noncompetes, with 38 percent having agreed to at least one in the past.” However, simply having a signed document in place does not automatically guarantee a non-compete agreement enforceable.
Is Your Non-compete Agreement Enforceable?
Note: We are not providing legal advice; rather, we are sharing six questions to ask yourself about your current non-compete agreement*:
Question 1) Does It Provide “Consideration” in Return for the Signed Agreement?
“Consideration” is a legal term for value exchange. For your non-compete agreement to be enforceable for new hires, the agreement must state that the employer’s willingness to hire the employee is based on an agreement not to compete.
For existing employees that didn’t sign a non-compete agreement when hired, additional consideration is required to make the non-compete agreement enforceable. Additional consideration could include new benefits, increased salary, or a change of status from “contract-employee” to “at-will”.
Question 2) Does It Restrict Competition for a Reasonable Amount of Time?
Non-compete agreements that restrict employees from competing for years on end are not likely to be considered reasonable. Therefore, it may be unenforceable. In many industries, the average duration for a non-compete agreement ranges from six months to one year.
“Reasonable,” by definition, varies from business to business. We recommend obtaining expert legal advice from someone in your state to create an agreement with an enforceable duration.
Question 3) Does It Restrict Competition in a Reasonable Territory?
Restricting employees from competing across the entire state, for instance, is most likely too broad of a territory. Instead, most enforceable non-compete agreements cover areas within a certain mile radius from a company’s primary location.
A reasonable radius should be determined by a legal professional who has experience with other businesses within your industry.
Question 4) Is It Tailored to Your Business?
It can be tempting to find a quick non-compete agreement online to use for your business. However, an agreement that works for one company in one industry won’t work the same for yours.
It’s crucial to craft a non-compete agreement that meets the specific needs of your business. Otherwise, you risk it containing information that doesn’t apply to your employees, which could deem the entire agreement unenforceable.
Question 5) Do You Update It Periodically?
Regularly updating your non-compete agreement will serve your business well. The circumstances, procedures, and employees pertaining to your business and the laws governing non-compete agreements will inevitably evolve.
A recent article by top international law firm Akin Gump Strauss Hauer & Feld LLP, explains the terms in which job changes can affect enforceability in a recent Massachusetts case. On May 31, 2019, a federal court “denied a request for an injunction by Sodexo Operations, LLC to prevent a former senior vice president from working for a Sodexo customer, where he would allegedly oversee the transition of the customer’s work to a Sodexo competitor.” This was due in part to “changed circumstances doctrine” because of the changes to the defendant’s role from 2005 when he signed the contract to 2019 when he resigned.
Keeping up with changes such as employee responsibilities will help provide peace of mind that your agreement is ready to enforce if an employee makes a departure.
Question 6) Is It in Accordance With the Law in Your Jurisdiction?
The landscape for employee non-compete agreements continues to rapidly develop year after year. States are constantly enacting new limits and regulations on the use of these agreements to provide a more fair experience for employees in the workforce.
This article by LegalNature lists the enforceability of non-compete agreements by state. However, view non-compete agreements as a tool for your business, rather than an unbreakable shield for the ultimate protection. Keep in mind that having a non-compete agreement for your business can be helpful, but it won’t automatically prevent legal disputes. It’s not uncommon for employees to risk the consequences of defying non-compete agreements. This ultimately means your business’s confidential information could still be vulnerable regardless of how enforceable your non-compete agreement is.
*DISCLAIMER: The contents of this website do not constitute legal advice and are provided for general information purposes only. If you require specific legal advice you should contact a specialist or lawyer to determine what makes a non-compete agreement enforceable in your jurisdiction.