Striking the Right Balance in a North Carolina Non-Compete Can Be Tricky

by Sands Anderson PC
Contact

North Carolina companies who rely on non-compete agreements to protect their trade secrets and proprietary information may want to review their agreements in light of two recent court decisions.

Agreements in restraint of trade, including some non-compete agreements are unenforceable as unfair trade practices in North Carolina.  Our courts do not like to restrict people from working, but will allow these agreements on a case-by-case basis.  Courts understand that employers have a legitimate need to protect their investments in training employees, trade secrets and proprietary information. Often, relationships with customers are a company asset and should not belong to the employee.

But these agreements need to be drafted very carefully so that they have proper consideration, are limited in time, limited in geographical scope and are limited to protecting a legitimate company interest.

In CopyPro, Inc. v Musgrove, Musgrove was a sales representative for sale and leasing of office equipment in Pender and Onslow Counties.  He had a non-compete that prohibited his working for a competitor of CopyPro for three years in several eastern NC counties, including Pender and Onslow.  He went to work for a competitor in a different county and did not contact any of his former customers.  He was sued for violation of the non-compete.

The North Carolina Court of Appeals concluded the covenant not to compete was unenforceable because it prohibited Musgrove from working for the competitor “in any capacity, including as a custodian.” The court found this noncompete provision was broader than it needed to be to protect the legitimate activities of the employer. It is interesting to note that the Court of Appeals began its evaluation of what actions were considered competition; it didn’t start with analysis of the time and geographical limitations. In this particular case, the time and geographical restrictions also may have been too broad, but the Court found the contract unenforceable based solely on the public policy of defining competition as narrowly as possible while still protecting the legitimate interests of the Company.

In addition, a covenant not to compete is like any other contract — there has to be valid consideration for it to be enforceable.  Usually the consideration is giving a new employee employment or giving a cash bonus to an existing employee in exchange for the employee agreeing to restrict his activities after employment ends.

In North Carolina, it is not valid consideration to be able to keep your existing job (“continued employment”) in exchange for signing a non-compete.

In Amerigas Propane, LP v. Coffey, Amerigas acquired the company Coffey worked for, via a stock purchase.  After the acquisition, Amerigas made the newly acquired employees sign a “Confidentiality and Post-Employment Agreement.”  There was no additional consideration offered to these employees for giving up their ability to compete.

The Amerigas agreement was found unenforceable by the North Carolina Business Court because acquiring the stock or membership interests of a company does not terminate the employment of existing employees — these employment arrangements were acquired just like any other asset of the acquired company. If, however, the assets of a company are acquired (rather than the stock or membership interests), employment is terminated and a new non-compete will have valid consideration.

It is more important than ever that your company’s non-compete agreements are narrowly tailored so they can protect your legitimate interests without unduly restricting your employees from continuing to work after they leave your company.

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.

© Sands Anderson PC | Attorney Advertising

Written by:

Sands Anderson PC
Contact
more
less

Sands Anderson PC on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.