Non-Competition Agreements and Other Restrictive Covenants

Published On: August 22nd, 2015

At least once a week, I get a call from someone asking me to prepare a "non-compete" or, even more commonly, to enforce one. There are some key considerations that business owners should keep in mind if they're thinking about using non-competition agreements in their business.

Restrictive covenants are generally disfavored by courts, which generally lean toward letting employees work in their chosen fields without these types of restrictions. As a result, any restrictive covenant that you ask an employee to sign should be written very clearly and concisely. It must clearly specify the geographic scope and the term of the restrictions, both of which must be reasonable. For example, if you hire a sales representative to cover a territory including three northeastern states, it may not be reasonable to have him sign an agreement restricting him from selling competing products anywhere in the U.S. Of course, the reasonableness of the geographic scope is very dependent on the nature of the employee's position and the business itself, and electronic commerce has had a significant effect on this issue.

Very importantly, when considering whether you want to require an employee to sign a restrictive covenant, the employer should ask itself what activities it wants to prevent. Do you want to prevent the former employee from working for a competitor entirely, or do you just want to prevent the former employee from using your confidential information from your business for another? Alternatively, will a non-solicitation agreement work? That is, are you simply trying to prevent a former employee from soliciting or servicing your customers? All of these nuances are important and could have a significant effect on the reasonableness - and the enforceability - of your agreements.

Finally, be aware that requiring a preexisting employee to sign a non-compete after he has been hired is likely not enforceable unless the employer provides some new consideration for that agreement.