When does a non-compete agreement protect an employer's legitimate business interests and when does it unnecessarily limit someone's ability to make a living? In general, it's estimated that one-fifth of the United States' workforce is under a non-compete agreement. However, those agreements are facing increasing scrutiny and many may not be enforceable.
What does a court examine when it looks to the validity of a non-compete agreement?
Experts say that the only non-compete agreements that are reliably enforceable are those that specifically aim to protect trade secrets or other confidential information. They're best when focused only toward upper-level employees who have access to trade secrets, client databases, or information on intellectual property that could damage a company's worth if given to a new employer. In cases where the employee is a lower-level worker without specific knowledge or expertise that could somehow harm their former employer in a competitive market, non-compete agreements may not be enforceable at all.
What measures can a court take if it decides a non-compete agreement can't be enforced?
If an employee challenges the validity of a non-compete agreement and the court agrees that it is too far-reaching or just generally inappropriate and over-limiting on that employee's ability to make a living, the court can exercise a couple of options:
-- It can invalidate the agreement in its entirety. That means no part of it will be enforced, which could really damage an employer's business privacy.
-- It can utilize the "blue pencil" rule and preserve the parts of the agreement that it finds acceptable while lining out any parts that are not. For example, it may limit the agreement in time to 1 year instead of 5. Similarly, it could limit an agreement in location to within the same state or 100 miles instead of within a five-state or 1000-mile area.
What else should employers know about non-compete agreements?
While the majority of employees in the United States are "at-will" employees who can be fired for any reason as long as it isn't legally discriminatory, courts may not enforce a non-compete agreement if the employee is fired without just cause.
Whether you're an employer drafting a non-compete agreement or an employee concerned about the effect of one on your future, consider getting the advice of a business litigation attorney.
Source: Newsday, "Noncompete agreements often not justified for lower-wage workers," Jamie Herzlich, March 26, 2017