In the fiercely competing market of present-day corporate businesses, employment contracts termed non-compete are often harnessed to protect a variety of trade secrets, confidential information, and customer-related matters. It is these agreements that keep ex-employees and business partners accountable for not engaging in some form of work competition within a stipulated period and area.
Therefore, enforcing such agreements or defending oneself against them is oftentimes a pretty complicated affair. Variability depends heavily on state law and the specificity of the language enshrined in the contract.
A Clearer Understanding of Non-Compete Agreements
A non-compete agreement (NCA) establishes a legally binding contract whereby one party (usually the employee, contractor, or seller of a business) agrees not to compete with another’s business interests after the termination of their relationship.
Restrictions usually imposed include:
- Working for a direct competitor.
- Setting-up a business of a similar kind in a prescribed area.
- Procuring customers, clients, or even employees.
Non-compete contracts safeguard against illegitimate business interests and should not create undue impediments to a person’s earning a livelihood. Accordingly, such contracts are examined by courts with great suspicion in regard to their fairness and reasonableness.
Enforceability of Non-Compete Agreements
For a non-compete agreement to be enforceable, the employer or business must establish that:
- The agreement is valid, enforceable, and executed properly.
- The restrictions of the agreement are reasonable with respect to time, area, and activity.
- The company has a legitimate business interest to protect (e.g., trade secrets, proprietary data, or unique customer relationships).
If the judge finds all of these aspects reasonable, he or she may issue an injunction preventing the violation of that contract by the former employee or partner. The company may also seek damages for lost profits or business opportunities. However, courts will frequently strike down, or at least diminish the scope of, non-compete clauses that unfairly inhibit someone from competing in an entire industry or area for several years.
Defending Yourself Against Non-Compete Enforcement Claims
A good many things might offer a defense in a dispute involving a non-compete agreement:
Unreasonable restrictions: Too broad in terms of time or geography.
- Lack of consideration: You never received anything of value in exchange for signing (required in some states).
- Public policy violation: The agreement unduly limits your right to work or to compete.
- Employer breach: The employer failed to uphold its obligations under the contract, thus voiding the non-compete.
An experienced employment or business attorney can review your agreement and advance arguments against its enforceability under state law and case law.
This post was written by Trey Wright, a sought-after Pensacola bankruptcy attorney! Trey is one of the founding partners of Bruner Wright, P.A. Attorneys at Law, specializing in bankruptcy law, estate planning, and business litigation.
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