Non-compete Covenant Lawyers

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What is a Non-Compete Covenant?

A non-compete covenant is a clause used in a contract to forbid an employee who leaves from taking up work with the employer’s competitor. Non-compete covenants can also restrain a former employee from starting his or her own business or direct competition against their employer. The rationale behind non-compete covenants is that the ex-employee might use the trade secrets of their former employer, such as client/information databases, to benefit the competitor.

What Criteria Must Be Present in a Reasonable Non-Compete Covenant?

There are several criteria that should be present to make it easier for courts to enforce the covenant not to compete:

Reasonable Time Restrictions

Depending on the industry, time restrictions vary. In manufacturing and marketing industries, courts have found two years to be reasonable. But in technology-based industries, courts have held covenants of even one year to be unreasonable.

Reasonable Geographic Scope

Most geographic restrictions are limited to the area where the employee worked. However, in industries such as Internet companies that do business worldwide, national covenants not to compete are considered reasonable if other factors are also reasonable.

Narrow Class of Customers and Competitors which Are Accessible

The more specificity in the covenant, the more reasonable the covenant will be. The covenant is likely reasonable if it only names customers with whom the employee had constant contact with and competitors now known and excludes possible competitors established later. 

Adequate Consideration

If the employee receives some form of compensation at some point, either via promotion or raise during employment or compensatory pay upon departure from the company, the restriction will likely be upheld by a court. 

Can an Employee Have a Court Overturn a Non-Compete Covenant?

If a non-compete covenant is restrictive to the point where a former employee cannot make a living, the employee can ask a court to intervene. However, a court may choose not to overturn a non-compete covenant. Instead, the court may rewrite the covenant so that it becomes less restrictive.

There are some states which dispute the legality of non-compete covenants, such as California and Florida, out of public policy. In those states, employees can overturn a non-compete clause unless the employer can meet at least one of the state’s exceptions to non-compete covenants. 

Can an Employer Decline to Hire or Terminate an Employee Who Refuses to Sign a Non-Compete Covenant?

Generally yes, an employer can end a relationship with an employee or a prospective employee if the employee or candidate doesn’t agree to a legal term of a contract. However, in states which dispute the legality of non-compete covenants, rejecting or terminating an employee who refuses to sign a non-compete covenant may be regarded as wrongful retaliation

Do I Need an Attorney?

Before signing anything that may restrict your future employment access, it is wise to have an attorney review the document. An attorney can also help draft a covenant not to compete, or negotiate the terms of the agreement. An experienced lawyer can advise you on whether you can sue an employee for breaching a covenant not to compete, or whether you can go work for a competitor.

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Last Modified: 04-12-2012 12:02 PM PDT

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