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Following our commitment to continue introducing new series and topics, this blog introduces you to our video titled “How To Ensure Non-Competes Are Enforceable.” For starters, a “Non-Compete” agreement or clause is an area of contract law involving a restrictive convent between an employer and employee. Generally, in a non-compete agreement, an employer and employee agree that the latter shall not start a similar trade or profession or work for another employer in competition against the former employer. Thus, an employee’s ability to work for a competing or rival employer is restricted. As this is becoming a popular area of law, and increasing in use by the day, we found it necessary to make this video to address and explain some of the legal issues related to non-competes and provide employers with key information regarding how to ensure that non-competes are enforceable.
Not long ago, we dealt with a case where potential employee approached us, responding to an advertisement for employment, and provided us with a copy of his “non-compete agreement”. It put this in quotes since the “agreement” was not really an agreement, but rather, one paragraph on an Offer Letter. The Offer Letter has a paragraph discussing a non-compete provision, indicating that it was illegal for the employee to have two jobs at the same time, and that would be a violation of the non-compete clause in that Offer Letter. Nonetheless, upon review, this was not actually enforceable, not a true non-compete, and really just a formality that was put in place to intimidate the employee and subsequent employer.
Here are some comments as to a Non-Compete.
First and foremost, a non-compete agreement must be in separate writing and not a phrase included in a letter of offer or some other employment-related document. Accordingly, such a non-compete must have the following characteristics in order to be enforceable in a court.
The employer’s restriction has to be reasonable in time and geographic scope.
For instance, you cannot restrict an employee for more than five or ten years unless the job probably involves handling a tremendous amount of proprietary & confidential information that could have significant implications for matters like national security for a given amount of time. When it comes to geographic scope, a restriction could range from anything like ten, twenty, or fifty miles.
The restriction should be necessary to protect a legitimate interest.
This means that the interest and reason for this restriction must be legitimate. Such an interest could be a trade secret or information entrusted to an employee, but which could be utilized by a rival competitor to its benefit. However, there is nothing proprietary or unique with mopping a hospital floor, and, thus, a restriction to a janitor who does such a job cannot be enforceable in court.
The restriction cannot be unnecessarily burdensome to employees.
Closely related to the first one on time and geographic scope, this characteristic implies that the restriction should not overburden the employee. For example, if an employee works in an e-commerce company, it would be unnecessary to restrict the employee from working in all e-commerce companies in a region. A restriction should be as narrow as possible.
The restriction cannot be harmful to the general public.
While this is a unique characteristic, a restriction that would harm the general public cannot be enforceable. For instance, imagine a doctor who works for a certain organization but has a non-compete to not work for another employer within a given geographic scope. However, following an epidemic, the doctor’s unique medical knowledge is required to create a cure for the hundreds of infected people inside the geographic scope of the restriction. In such a case, the restriction would not be enforceable in court because the public would be harmed if the doctor does not take part in creating the cure.
The question regarding the legitimacy of an employer’s interest is often a critical factor of consideration to courts. Usually, courts handle cases related to non-compete agreements on a case-by-case basis since there is no specific statutory guidance for use as reference, particularly because each case is unique in its own way. Again, the degree of legitimacy of an interest varies significantly from case to case. For instance, restricting an employee from revealing a company’s trade secrets to a rival company is a more legitimate interest as compared to restricting an employee from adopting a formula of displaying items on a supermarket’s shelf that is similar to the one this employee used while working for a previous employer.
Please, feel free to view our video at https://www.youtube.com/watch?v=LEL0Hlk0EEY.
In the meantime, stay tuned for the next instalment and always strive to be #UnusuallyMotivated. In the interim, reach out to us with questions and/or comments on our website at the Contact Us page!
Always rising above the bar,
Legal Writer & Author.