Last June, I stressed that while the law surrounding enforceable covenants not to compete varies from state-to-state, there are a few more general nationwide consistencies including, for example, reasonable limitations as to geography, scope and time. You can see that article here. This article is intended to cover an increasingly common and specific situation within the performance marketing industry.
Assume your network is located in State X and your attorney drafted a confidentiality and non-compete agreement for employees to execute. Assume further that you your company has out of state employees. This raises the important issue of whether your non-compete will preclude these out of state employees from competing and taking your business partners.
Which law applies to the enforcement of your non-compete agreement?
Just because the relevant agreement may contain a choice of law provision stating that it will be enforced pursuant to the law of State X, you must keep in mind that some states will only enforce non-compete agreements under their own laws, regardless of your choice of law provision.
Stated another way, the enforceability of your non-compete agreement may hinge on where an employee works and not on where you are headquartered, or the state law designated by your contract.
Was your employee terminated or did he/she voluntarily resign?
Some states will refuse to enforce non-compete provisions against employees that were involuntarily terminated. Of course, a handful of states prohibit non-competes altogether. California, for example, has a deeply rooted public policy favoring free competition and generally weighs against the enforceability of non-competition agreements.
All non-compete agreements must be tailored so that the scope is no greater than is reasonably necessary to protect an employer’s specific legitimate business interest. Only after the enforcing party establishes that the non-compete agreement is reasonably necessary to protect a legitimate business interest will the burden shift to the employee to prove that the agreement is overbroad or not otherwise reasonably necessary. Thus, illustrating that there is simply no “one size fits all” non-compete agreement. See here.
You are well-advised to consult with your business and employment law attorney regarding the enforceability of your current non-compete agreements, relevant jurisdictional differences, customizing contractual language, and the manner and timing of presenting contracts to employees.
Disclaimer: This article is intended for informational purposes only and does not constitute legal advice. Consult with legal professional for assistance with the preparation of non-competition agreements and employment contracts.
