A non-compete agreement also referred to as a “restrictive covenant” or “a covenant not to compete” is an agreement by an employee not to compete with the employer for a specified amount of time, in a particular location or in a particular way. These types of covenants are usually included as a clause in certain employment contracts. The covenant prevents employees from engaging in business similar to or competitive to the prior employment. The agreements are intended to prevent employees from using information learned from the previous employer in a way that would harm the business. A non-compete agreement is enforceable if it meets the reasonableness requirement.
The agreement usually imposes some restriction, which limits what the employee may do after termination of employment to protect an interest of the business. However, the restraint cannot be greater than necessary for the protection of the employer. Thus, a business operating in a single area cannot place a restriction on an employer to prevent him from working in another area.
In order to establish a case for breach of a non-competition agreement, a person must prove the following: the person against whom the claim is brought is bound by a non-competition agreement which is part of a valid employment contract; the noncompetition agreement is valid; the noncompetition agreement is reasonable; and the agreement has been breached.
A non-compete agreement is enforceable and valid if it is written, in relation to another transaction, reasonable, and supported by consideration. Factors that are reviewed in determining whether the agreement is enforceable or not are as follows: the need to protect the employer’s interest, the hardship of the employee, the public interest, the employer’s interest in confidential information, the employer’s interest in customer contacts and good will, the extent to which the employee’s activities are restricted, the geographic scope of the restriction, and the length of time for which the restriction is imposed.
The court will determine whether an agreement is reasonable or not. In considering the question of reasonableness, the court looks at the following: whether the agreement is broader than necessary for the protection of some legitimate interest of the employer; the effect the agreement has on the employee; and the effect of the agreement on the public.
Employees can develop a defense to breach of noncompetition agreement by showing either the covenant is not supported by a valid employment contract, the covenant is unconscionable (i.e. the agreement favors the employer and causes a hardship to the employee), the obligation has been discharged by the employer’s material breach of the employment contract, or the employer has abandoned the covenant or should be barred on from enforcing it.
Non-compete agreements are enforceable unless the agreement is overbroad in ways that would be harmful to the employee and the public as a whole.
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