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.)
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 ...
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.
