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Non-Compete Agreements
Is Yours Enforceable?

Non Compete Agreements

Issues has been asked to verify the legality of non-compete agreements. Two distinct questions were posed: are non compete agreements legal and are there any standards that must be followed when drafting a non-compete agreement? Issues has learned that no Federal Statutes exist concerning non-compete agreements. We have also learned that  non-compete agreements are totally invalid in some states, (i.e. Montana, Nevada, North Dakota, and Oklahoma) some states consider non compete agreements invalid or in some case limited, (i.e. California, Colorado, Florida, Hawaii, Louisiana, Oregon, South Dakota, and Wisconsin.)  While the remaining states consider the covenant as being at least partially valid. Partially valid means the less the former employee is restricted, the more enforceable to agreement. (Ex. an agreement indicating an employee can never compete against his former employer in any state will more than likely be found invalid, yet a restriction of 1 year in an immediate area will more than likely be found valid. A non compete agreement may also have some issues that a court would conclude were invalid, while other issues were deemed to be valid.) In general, a non-compete agreement should protect the employees rights as much as it protects the employers rights if it is expected to withstand litigation. (Note - Several States are enacting laws to protect broadcasters against non-compete agreements.) 

In the 1999 New York Case: BDO Seidman v. Hirschberg, 1999 N.Y. Int. 0082 (May 13, 1999) the following was noted: The modern, prevailing common law standard of reasonableness for employee agreements not to compete applies a three–pronged test. A restraint is reasonable only if it: (1) is no greater than is required for the protection of the legitimate interest of the employer, (2) does not impose undue hardship on the employee, and (3) is not injurious to the public ( see, e.g., Technical Aid Corp. v Allen, 134 NH 1, 8, 591 A2d 262, 265–266;Blake, op. cit., at 648–649; Restatement [Second] of Contracts § 188). A violation of any prong renders the covenant invalid.

Continued Next Column

 

Traditionally, provisions in non-compete agreements that have been  enforced by American courts are intently adapted provisions  intended to protect only legitimate employer interest. 

Unenforceable covenants would sever  common law aversion to limiting a person's ability to earn a living or prohibit legitimate competition.

A non-compete agreement must be reasonably and clearly limited both ... 

     

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in time and geography. Some courts have found a period of 18-months to be reasonable. The geographical area must coincide with the exact area in which an employee had business contacts during his employment. In other words, if a company does business within an entire state, but the specific employee worked in only one county, the employer cannot require a non-compete throughout the entire state.

Additional factors may influence a court's decision to void a non-compete agreement. These factors include: whether or not an employee is to be paid a severance package throughout the duration of the non-compete: whether the employment was terminated by the employer or the employee: whether the non compete was made at the commencement of the employer/employee relationship or throughout the time the employee was employed: and finally, whether or not the non-compete was part of the employment contract. (Note - Issues have been raised in regards to employers forcing employees to sign non-compete agreements without more than continued employment as a means of consideration.) 

There are many other issues to look at in regards to non-compete agreements. It is always best as an employee to protect yourself by having an attorney that specializes in Labor Issues, examine any proposed non-compete agreements prior to signing them.

Employment & Business Section:

  1. Fired for Having a Heart Attack - The Employment At-Will Doctrine

  2. Is At-Will Out-The-Door in NY?

  3. Workplace Violence & Employment At-Will
  4. Non-Compete Agreements

  5. Wrongful Termination

  6. State-By-State Laws: At-Will Employment

  7. Hostile Work Environments

  8. Car Buying Guide

  9. State-By-State Resources: Department of Motor Vehicles

  10. Investigate That Business

  11. Background Investigation Databases

  12. International Unclaimed Funds Databases

  13. American Unclaimed Funds Databases



Page last Updated 6/20/2002
C 2002 L Munro