is reasonable with regard to duration,
geographical limits and activities.
DURATION. One year is often considered reasonable. Again, there are exceptions, and each non-compete should
be viewed independently to determine the
least amount of time necessary to protect
the legitimate business interest. If the
court determines the duration is overreaching, it will revise the agreement or
toss it altogether.
You can also include a tolling provision in your non-compete that extends
the duration of the non-compete until
such time as the employer discovers that
the employee is violating her non-compete. That way, if the unlawful competition occurs for 6 months prior to your
becoming aware of it, you will still have
the full duration of the term that can be
enforced under the non-compete.
GEOGRAPHICAL LIMITATIONS.
Limiting where a former employee can
work will be viewed unfavorably by a
court if the geographical restraint is more
than necessary to accomplish the employer’s objective of protecting its business interests. The key is to draft it as narrowly
as possible.
DUTIES. The non-compete should
state what type of duties the employee is
prohibited from engaging in. However,
An employee must be given
consideration for her promise not to compete. She’s not
going to just agree to it for
nothing, right? Proper consideration is that which gives rise
to the need for the employer
to protect, such as the disclosure of confidential information, and specialized training.
States differ on whether continued employment is sufficient consideration to support
a promise not to compete where the employment is employment at-will, since
the employer can terminate employment at its discretion.
As consideration for a non-compete,
confidential information should NEVER
be disclosed prior to the employee signing
the non-compete, but only in exchange
for the non-compete. Think like you’re
a little kid…you don’t give up your secret
hiding place until the other kid has made
his promise to keep it a secret. Once the
confidential information has been disclosed, new consideration is generally required for a promise not to compete by
the employee.
There is a school of thought that in
drafting non-competes, that it is better to
be as sweeping as possible in the scope of
your non-compete to cover any situation
that might arise, but just in case you’ve
gone too far, you give the court authority
to scale it back to something legal, (
referred to as “blue pencil” clauses). Don’t
go to that school. Rather than reform
these agreements, oftentimes, courts will
simply toss the entire agreement.
Choice of law and where you bring
suit (forum) is also a big consideration. Because state laws vary greatly
on non-competes, forum selection and
choice of law issues can make or break
a case. California and Colorado only
allow non-competes in select situations,
whereas Oklahoma and North Dakota
forbid them entirely. When a top exec
at Microsoft left to work for Google,
Google tried its best to move the case to
California where the non-compete would
be prohibited. This attempt failed, and
the non-compete was upheld.
As you can see, the drafting and enforcement of non-competition agreements is a nuanced exercise. One size
does not fit all. You cannot apply the
same non-compete to your salesperson
as to your plant manager. You cannot
apply the same conditions (term, geographical limitations or limitations on
job duties) to each situation. You can’t
even rely on consistent state laws. In
some cases, you probably should not use
one at all, defaulting instead to another
mechanism for protecting your business
interests. But if you do choose to use
one, then a non-competition agreement
should be just one piece of the innovation protection pie, used in connection
with confidentiality, non-solicitation,
anti-raiding and assignment of invention
agreements to comprise a well-balanced
intellectual property program. CW
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