Employee Non-Compete Contracts

Many employers use a non-compete contract to restrict or limit employees and former employees from working for a competitor, or from divulging trade secrets or other proprietary data.

Most non-compete contracts or agreements are entered into and signed at the outset of an employment relationship where the employee may have very little bargaining power.  At the time of signing, the prospective employee probably is not too concerned about limitations on future employment. 

In ordered to be enforceable, a non-compete agreement, like all contracts should address the following points:

The agreement must be Reasonable.  Determining the line between reasonable and unreasonable is not easy, but the examination of a clause in a non compete agreement which was deemed unreasonable should provide some guidance.  The following excerpt is from a Court of Appeals case of .U.S. LAND SERVICES, INC., Appellants-Defendants. vs,  U.S. SURVEYOR, INC., Appellee-Plaintiff. The referenced clause:

Employee/contractor agrees that at no time during the term of this agreement, or for a period of three (3) years immediately following the termination of this agreement and/or termination of employment or business relationship, thereunder, will the employee/contractor, for him/herself or in behalf of any person, partnership or corporation other than “US Surveyor, Inc.”, engage in the services provided by US Surveyor, Inc., within the continental United States. 

I did not find a reference regarding the 3 year limit being excessive, but the inclusion of the entire continental united States was deemed xcessive.  Restriction might reasonably be a area around the office of the employer, but that distance would be a matter for the court to decide.

There must be consideration or compensation.  Many states require that the employee be given something in exchange for entering into this agreement..  If the agreement is offered after employment, in most cases there must be consideration also specified in the agreement.

Must be for a specific amount of time. A non-compete agreement cannot be a burden for an unreasonable amount of time.  As mentioned above, I found that the 3 year limit in the above case provoked no comments. 

Care should be exercised when presenting a non-compete agreement to a prospective employee.  In some states, if one part of the agreement is deemed excessive, the entire agreement is thrown out.  In others only the offending provisions are removed, and the agreement is then enforceable.

Disclaimer: It should be pointed out that this author is not licensed to practice law in any jurisdiction in the United States, and does not offer the above comments as legal advice.  In cases where the particular actions  referenced in the above article are contemplated, competent legal advice is advised.