Bass, Berry & Sims attorney Bob Horton authored an article for Today’s General Counsel detailing options in-house attorneys might consider if their business does not have non-compete agreement in places but would like to develop one.
“The jumping-off point for consideration is understanding that non-compete agreements are generally disfavored as a matter of public policy because individuals are being restricted in their opportunity to find work and support themselves,” Bob said. “The public policy issue results in different approaches toward non-competes in every state.”
Courts in different states will vary on the enforceability of non-competes and how different restrictions may be included depending on whether they view the agreements favorably or not. For example, non-competes arising out of an employment agreement may be enforced for up to two years in the geographic area served by the employer during the employment relationship. However, courts in favorable states often will limit enforcement to a shorter time period and only the geographic area where an employee actually provided services, while less favorable states may not enforce the agreement at all (e.g., California), or limit enforcement to employees compensated over a certain threshold (e.g., Illinois) or require compensation for the former employee during the term of the non-compete (e.g., Massachusetts).
The state-by-state patchwork introduces challenges for implementing a non-compete in the workplace, but Horton offered some takeaways to navigate the complex issue, including:
- Be mindful of the approach to non-competes of the states in which employees are located.
- Only require non-competes for employees who really do have access to confidential information that is of a consequential nature or personal relationships with customers that could be used by the employee for a competitor.
- Consider whether you can obtain the necessary protection by requiring only a non-solicitation agreement (the employee agrees not to do business with customers of the business), rather than a non-compete in which the employee agrees not to engage at all in the provision of the same services as the employer.
- Limit the time period and geographic scope of non-compete as much as possible.
- Draft non-compete agreements so that they can withstand blue penciling if necessary. Add multiple provisions regarding length and geographic scope so something will be left if the court strikes some of the provisions.
- Finally, take heart that even in states that will not enforce a non-compete, thereby leaving the customer goodwill developed by your employees essentially unprotected, courts will still protect your confidential information. Every non-compete agreement should include a confidentiality agreement. Often unfair competition can be protected by enforcing the confidentiality obligation of the former employee.
The full article, “Developing a Non-Compete Implementation Strategy,” was published online and in the November 2022 issue of Today’s General Counsel.