Employment Law Newsletter

Noncompete Agreements

Covenants not to compete, or noncompete agreements, are fairly commonplace in employment contracts. The purpose of the agreement is to protect the employer's business interests, trade secrets and other confidential and proprietary information should the employment relationship end. For example, physician contracts often include noncompete agreements that prevent the doctor from taking clients with him or her or working for a competing physician group within a specific geographic range.

To be valid, a noncompete agreement must be:

• In writing
• Ancillary to a valid employment contract
• Supported by sufficient consideration
• Reasonable in scope and activity restrictions

Written Contract

Some jurisdictions will enforce oral noncompete agreements, but this is the exception and not the rule. The noncompete agreement should be secondary or auxiliary to the employment contract. This does not mean the noncompete agreement has to be signed after the employment contract or prior to the start of the employment relationship; in some situations, the noncompete agreement may be signed first or not until after employment has begun and can still be valid.

Consideration

If the noncompete agreement is part of the main employment contract, the job itself serves as sufficient consideration for signing the agreement. If the noncompete agreement is separate, however, then the employee must receive some corresponding benefit in exchange for signing the agreement. This could include an equally binding promise by the employer, such as a continuation of the employment contract for an indefinite period of time (known as "mutuality of obligation").

Reasonableness

One of the most important issues in determining the validity of a noncompete agreement is whether or not it is reasonable. Courts consider several factors in making this determination, including:

• The hardship placed on the employee
• The length of time of the restriction
• The geographic scope of the restriction
• The types of activities restricted
• The employer's interests
• Whether the restraint is more than necessary to protect the employer's interests
• The public's interest

Noncompete agreements cannot be overly broad. The employer must have a legitimate business interest in requiring employees to sign the agreement. Courts may order preliminary or permanent injunctions against former employees who breach valid noncompete agreements. Employers also may be able to recover actual and liquidated damages for the breach as well as repayment of any consideration offered to the employee in exchange for signing the agreement.

For more information on noncompete agreements, or to have a legal professional review your noncompete agreement, contact an experienced employment law attorney in your area today.

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Meeting with Your Employment Law Attorney

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