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Legitimate Interest in a Covenant Not to Compete

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What Is a Covenant Not to Compete?

There are three general questions courts ask to determine the validity of a covenant not to compete:

  • Is there a legitimate interest the employer needs to protect?
  • Has the employer narrowly tailored the protection to focus on the legitimate interest?
  • Does the protection unreasonably burden the employee?

What Is a Legitimate Interest?

A legitimate interest occurs when the departing employee obtained confidential information during his employment, such as a trade secret, which the employer desires to protect from leaking to the departing employee's new employer. Additionally, if the departing employee would not have had any contact with the former employer's customers without employment, then a legitimate interest in protecting their almost permanent customer base exists as well.

How Can you Determine If an "Almost Permanent Customer Base" Exists?

There are several factors to consider in determining just how permanent the customer-employer relationship has become:

  • Length of time in development of customer base
  • Amount of money spent on development of customer base
  • How hard it was to gather customers
  • Amount of personal contact employee had with customers
  • Amount of knowledge employee possessed about the customers
  • Length of time employee associated with customers
  • How continuous the relationship between customer and employee was

How Can an Employer Narrowly Tailor the Protection to Focus on the Legitimate Interest?

The employer must simply create a covenant not to compete that addresses only the legitimate interests and no others.

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 experienced employment attorney can also help draft a covenant not to compete, or negotiate the terms of the agreement. A 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.

Photo of page author Peter Clarke

, LegalMatch Content Manager

Last Modified: 05-28-2018 06:50 PM PDT

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