Are You Sure Your Non-Compete is Enforceable?

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A recent article in Barron’s states that there has been a 60% increase in employers suing departing employees for violating non-competition agreements in the past decade.  Overzealous restrictions may be stifling entrepreneurship.  

Courts, including those in North Carolina, however, are reluctant to enforce non-compete agreements and prevent someone from earning a living.  It is essential for companies to thoughtfully craft their non-compete agreements to protect their legitimate business issues, but not be over-zealous (and the agreement be unenforceable). It can be a tricky balance.

English: Discussion about the text Français : ...In North Carolina, a restrictive covenant is valid and enforceable if it is:
  • in writing entered into at the time and as a part of the original contract of employment
  • based on a valuable consideration
  • reasonable both as to the time and territory
  • designed to protect a legitimate business interest of the employer
  • not against public policy.

In determining whether restrictions on competition are reasonable, North Carolina courts balance the following factors:

  • the area, or scope, of the restriction the area assigned to employee
  • the area in which the employee actually worked or was subject to work
  • the area in which the employer operated
  • the nature of the business involved
  • the nature of the employee’s duty and his knowledge of the employer’s business operation.

Because this is a balancing test, the analysis of whether the agreement is enforceable will vary case by case. A long time period may be enforceable where the geographic scope is very limited and the definition of competition is very limited (and vice versa). If the non-competition agreement for an employee is found by a court to be unenforceable, you may  have trouble the same agreement against other employees.  It is important to get it right to protect your business.

Topics:  Non-Compete Agreements, Restrictive Covenants, Void and Unenforceable

Published In: Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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