non-compete agreeements by Heather Bussing on HRExaminer

Heather Bussing Returns To The HRExaminer Editorial Advisory Board With Information on Non-Compete Agreements.

Heather Bussing is a returning contributor to our HRExaminer Editorial Advisory Board. Heather has practiced employment and business law for over 20 years. She has represented employers, unions and employees in every aspect of employment and labor law including contract negotiations, discrimination and wage hour issues. While the courtroom is a place she’s very familiar with, her preferred approach to employment law is to prevent problems through early intervention and good policies and agreements. Full bio

 


Is Your Non-compete Agreement Enforceable?

by Heather Bussing
A Non-compete agreement is a contract between an employer and employee where the employee agrees not to work for competitors of the employer for a certain amount of time after the employee leaves.

Each state has its own unique laws and rules about whether, when and to what extent a non-compete agreement is enforceable.  Usually the law where the employee works applies even if the company is located in another state where the agreements are enforceable.  Recently Georgia, which had traditionally been hostile to enforcing non-compete agreements, enacted legislation that expressly permits the enforcement of noncompete agreements under fairly broad circumstances.

Anatomy of a Non-Compete Agreement

Non-compete agreements typically have two important parts: 1) protection of trade-secrets; 2) restrictions on where employees can work after they leave.

The trade secret protection is essentially a non-disclosure agreement and is designed to keep a company’s proprietary information secret. It usually covers company product information, sales strategy and client lists and contains a long list of other things that boil down to one of the above.

The work restrictions usually prevent an employee from working for a competitor in the same market or geographical area—usually for one or two years. These provisions are often drafted so broadly that the only place the employee could ever work would be a research substation in Antarctica teaching polar bears to surf.

Non-Compete Agreements Are Often Restricted or Unenforceable
Because non-compete agreements are so restrictive, they are often restricted or not enforceable. In California, non-competes are effectively illegal unless you are selling a business. Other states will enforce some provisions, usually the trade secret protection, but not the work restrictions.

The first thing to look at is whether there was some form of payment or consideration for the non-compete agreement. When the agreement is signed at the beginning of employment, courts will usually interpret the NCA to be part of the overall employment deal and find that there was some fair exchange for the agreement. But when an employer asks an employee to sign a non-compete agreement after starting employment and there is no extra payment or benefit to the employee for signing it, then almost all courts will invalidate the agreement for lack of consideration.

The next thing to consider is the laws of the states involved—where the employer is headquartered and where the employee will physically be working. If either has restrictions against enforcing NCAs, then the agreement may not be effective.

About one-third of states have some restriction on the enforceability of non-compete agreements because they interfere with a person’s basic ability to work and make a living. The restrictions usually limit the geographical area where the employee cannot work for a competitor and limit the time of the non-compete to less than two years. The employer has the burden of showing that any restriction is reasonable and necessary to protect against unfair competition. California, Louisiana, Alabama, Florida, Oregon and Michigan have the most restrictions against non-compete agreements. Other states, like Texas, will enforce the agreement but the courts often re-write non-compete provisions to the restrictions the employer can prove are necessary to preventing an unfair advantage by the new employer.

In California, non-compete agreements are illegal and unenforceable except in very limited situations. California will recognize an employer’s right to protect trade secrets, but only if the employer can show that the information really is proprietary and should be kept secret—not just because the employer says it is. Even client lists are not secret if the information can be obtained in other ways besides the employer’s internal lists.

In addition, employers who have fired employees working in California for refusing to sign a non-compete agreement have been liable to the employee for wrongful termination and have also been liable for damages for unfair trade practices for trying to enforce a non-compete agreement in bad faith.

So before you require employees to sign a non-compete agreement, make sure the agreement is valid under the law where the employee works.

 
  • Heather Bussing

    Yesterday the Colorado Supreme Court issued a decision that held that a noncompete signed after the employee started working was still enforceable.  See Eric Mayer’s blog post on the Colorado decision and other recent court decisions at http://hrla.ws/iTEjAv

  • Pingback: Is Your Non-Compete Agreement Legal? - Blog - Scisbo()

  • Most of the time in NC they are unenforceable due to either necessary hardships or being too broad http://www.kirkkirklaw.com/legal-resources/is-your-non-compete-agreement-enforceable

  • Jeff

    I have a non compete in ohio, for 10 years. But my employer has me sign an employment contract yearly. Is the non compete not enforceable ?

  • kathy

    if an enploye is fired is the non conpete still inforceable in the state of nj?

  • Tom

    I signed a 2yr non compete in Minnesota. Within 3 months time, my pay structure was totally changed from salary to strait commision without signing anything for the new pay scale. I have been with my employer for only 7 months and i am looking to leave. Do i have the grounds for getting out of my contract?

  • If you are looking for information on noncompetes in your state, start here. http://www.beckreedriden.com/50-state-noncompete-survey/ The chart was last updated in 2013. Then be sure to talk to an employment attorney in your area because the law changes often, sometimes because a new statute is passed, and sometimes due to interpretation in a case by courts.

  • Mr. Shadow

    So essentially, don’t sign the non-compete agreement unless you are being compensated.

  • Pingback: Contractor vs Empoyee and non-compete clauses | Gary's space()

  • Neha reddy

    My Employer is in Pennsylvania and i am working in california, is my Non-Competent agreement still Enforceable?

  • Pingback: Should you sign a Non-Compete Agreement? Part 1 | Don on Selling()

  • Richard Ennis

    I just received a copy of the non compete from the job I just quit on and I don’t see a time frame of how long on it and it does not have the name of the company it’s a mother for another business they own is it still valid

  • Jenny

    This is really good news. I worked in a salon where my employer made me sign a non compete contract probably 4-6 months after i started. She never gave me a signed copy to take home and found excuses (suspicions, really) not to let me take a look again. The only thing I remember is I couldn’t work anywhere within 20 miles of her salon which I deemed very unjust, considering myself and an other employee did not have a car and the cost of transportation in the Bay Area can be expensive for 20 miles if we quit or were terminated. The Bay Area is VAST but after looking at my maps to consider my options I might as well moved elsewhere!

    I was terminated about a month ago and when asked for everything I have signed in her salon, she has not complied whatsoever. Not surprising, as a lot of past employees have been coming for her for legal issues as well as personal. But before reading your blog I thought I was screwed, and everything she was doing the law deemed it ok. Now I love California a little bit more, and glad there are people like you who help educate someone like me who knows nothing about laws other than the basics.

    My only question is, if she found out I worked in an other salon within 20 miles does she still have leverage to sue me although with your information her efforts would most likely be ineffective? Should I hire a lawyer to be prepared? Is it possible she knows that non competes aren’t enforceable in California and made one anyway to scare us? Or will she be really forced to take a loss since with your information, I can live freely to live out my livelihood without all this drama?

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