What Is a Covenant not to Compete in an Employment Contract?A covenant not to compete is an agreement where the employee promises not to work for a direct competitor upon termination of his employment. These agreements are common and most likely to be enforced when a leaving employee has access to sensitive business information or trade secrets.
What Are the Bases of Public Policies against Enforcement?Sometimes a court will decide that a contract should not be enforced because its terms are so unfair that they are against public policy. A court can find a contract unenforceable as against public policy based on:- Legislation relevant to such a policy; or
- The need to protect some aspect of the public welfare.
What Types of Contracts are Unenforceable as against Public Policy?Some contracts are deemed unenforceable if they:- Put an unreasonable restraint on trade;
- Impair family relations; or
- Interfere with other protected interests.
However, there is a strong public interest in freedom of contract and any denial of enforcement of a contract based on public policy must have a well established basis.
Is a Covenant not to Compete Enforceable?The common law holds that a covenant not to compete is unenforceable (as a restraint of trade) unless it is non-essential to a valid transaction. In employment contracts, a promise by an employee not to compete with his employer is typically non-essential to the contract itself. When discussing whether such a covenant is enforceable, the court asks itself a series of questions:- What type of transaction is involved?
A covenant that is related, for instance, to a sale of business will not be as closely scrutinized as one related to employment. Employees are seen as having a greater bargaining disadvantage, needing more court protection.
- Is the covenant reasonable in light of the public policy?
In determining whether the covenant is reasonable, the court looks at a number of things, including: - Scope of the covenant
- Hardship imposed on the person who agreed to the covenant
- Public interest
Should I Consult an Experienced Lawyer on Covenants not to Compete?Covenants not to compete can prevent you from taking another job after you are laid off or fired. An experienced employment lawyer can help you determine whether a covenant not to compete in your employment contract is enforceable. An employment lawyer can also represent you in court. |
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