We all know that in the performance marketing industry a covenant not to compete can be a valuable asset. Distinguished from a non-disclosure agreement, which prohibits the disclosure of trade secrets or proprietary information, a covenant not to compete is much more potent because it can be used to prevent employees from working for a competitor while they are still working for you, or for a specific period of time following their employment.
The law surrounding enforceable covenants not to compete varies from state-to-state. However, there are a few nationwide consistencies. One being that courts disfavor non-compete agreements as being against public policy because they theoretically restrain a person from working in his/her professional field. Therefore, it is vitally important that companies plan ahead and consult with an experienced covenant not to compete and trade secrets law attorney to maximize the chances that these agreements will ultimately be enforceable.
As a general rule, covenants not to compete are enforceable in many states if they meet certain threshold requirements, including, without limitation, that they are in writing, based upon sufficient consideration, reasonable in scope, and reasonable as to time and geographic region,
Below is a brief summary of issues pertaining to consideration, time, scope and geography.
Not unlike any other contract, a non-compete agreement (“NCA”) must be supported by consideration to be enforceable. NCA’s are typically entered into in conjunction with an employment contract. Thus, the promise of new employment is oftentimes considered sufficient consideration. However, issues often arise regarding whether such a covenant that is not part of the original employment offer is valid consideration. In other words, a promise of “continued” employment.
In circumstances where a NCA is executed subsequent to the formation of an employment relationship, there generally must be new and different consideration to support the covenant. This can include, for example, a change in compensation or the scope of employment.
A NCA must also be limited in terms of geography, scope, and time. This means that it cannot prevent someone from working in a given profession anywhere on the planet, in perpetuity. There is no bright-line rule regarding what constitute a reasonable geographic or time-and-scope limit and the analysis varies from state-to-state. Further, the issue of whether the restraint is reasonable will vary depending upon the specific facts, including the nature of the business and of the employee’s duties.
Generally, courts will enforce NCA’s so long as they are narrowly tailored to protect the legitimate business interests of the employer and do not impose an undue hardship on the employee. Courts generally find that trade secrets and confidential information, goodwill, client relationships, specialized training, and unique skills are legitimate interests that a company may seek to protect through the use of a NCA.
In order to enhance the chances that a court will enforce a NCA, you must avoid general form agreements at all costs and, instead, utilize agreements that are specifically tailored to a particular employee.
When preparing a NCA, be certain to consult with a legal professional who can assist you with identifying the interests that your company seeks to protect, drafting with specificity, and thoroughly reviewing applicable state law in order to ensure that the NCA will be held enforceable by the courts of the state in which you plan to have the agreement enforced.
Disclaimer: This article is intended for informational purposes only and does not constitute legal advice. Consult with an Internet Marketing Law Attorney for assistance with the preparation of non-competition agreements.
