Non-Competition Agreements and Your Business
Non-competition agreements are sometimes used by businesses to protect themselves in the area of their relationship with their employees. They are basically an agreement secured by the employer from the employee that they will not compete with this employer after their employment with that particular firm ends. The more high stakes the type of business or industry in terms of the harm competition from recently discharged employees could do, the more likely such agreements will be commonplace. They are also likely to be obtained when someone sells a business, including their client or customer list. The person who buys that business will need to know that you can’t set up shop down the street and continue selling to that same client list.
The Enforceability of Non-Competition Agreements
There is some variability in state laws as pertains to these types of agreements. In California, for instance, they are illegal except for limited situations having to do with selling a business or dissolving a partnership or LLC. In most states, however, they are generally enforceable as long as they are considered reasonable by the courts in terms of the three criteria of time, distance and type of business. In order to be considered valid, the length of time that such an agreement restricts a former employee from engaging in a similar type of business needs to be seen as reasonable and only what is minimally necessary to protect the company’s vital business interest. Similarly, geographic area restrictions also may come into play. If someone is working for a law firm in Miami, for example, then they quit and move to Jacksonville nearly 350 miles away, a court may find an attempt to enforce a non-compete agreement on that relocated former employee to be an unreasonable restraint of trade because they are now too far to be reasonably competing for the same clients. These agreements also only come into play, of course, if the former employee is going into the same type of business as the former employer.
Protections Afforded By a Non-Compete Agreement
A business spends years and untold dollars of advertising revenue building up a customer or client list. The law sees this as an asset that is worthy of legal protection. This is why one of the most common uses for these types of agreements is to keep an employee from simply leaving after a few months working somewhere and taking the Rolodex of clients or customers with them to open up a competing shop down the street. An employer may also invest a lot of time and money in specialized training for an employee to work for them, and this would simply be lost to no return for the company if they quit and immediately went into business for themselves. In addition to training, company’s will also have certain trade secrets that they don’t want employees learning only to leave and start using them to their benefit.
They are Not a Panacea
Non-Compete agreements are not a magic bullet but rather another tool in any businesses’ arsenal to legally protect themselves and retain valuable employees. A company still has to prove in court that a former employee used some trade secret of theirs in their business or any other legal claim made against them. Non-compete agreements are a vital instrument in helping a business protect its investment in its confidential information, employees and customer lists, and as long as they are carefully worded in terms of reasonableness of time and geographic restrictions, they can be an enforceable and effective tool.
If you or your business need any help with non-compete agreements, contact us at 512-457-1177 today.
