N.C. Appellate Court Refuses to Declare Noncompete Invalid Prior to Discovery

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In some situations, lawyers can determine that post-employment noncompetition agreements are likely to be declared automatically invalid. For example, a North Carolina employer that attempts to obtain a five year post-employment restriction will lose regardless of the reasonableness of other parts of the noncompete. Last month the North Carolina Court of Appeals reminded employers that absent such clear abuse, determining the reasonableness of a noncompete requires a factual determination of the specific circumstances involved.

In Market America, Inc. v. Lee, the defendant signed a noncompete stating that she would not compete with her employer for one year after departure from employment within a specified geographic territory. She left and immediately began working for a competitor. The former employer sued, and the trial court dismissed the claim under Rule 12, concluding that the noncompete was invalid as a matter of law. The plaintiffs appealed, and the Court of Appeals reversed this part of the decision, remanding the case for discovery and additional proceedings.

The court noted that in order to dismiss the claim under Rule 12, the noncompete in question must be facially invalid as a matter of law. In this case the noncompete provided a one year post-employment restriction, which has been upheld in other circumstances. Absent factual evidence of the unreasonableness of the restriction as applied to these specific circumstances, the court cannot conclude that the noncompete is invalid. This may end up being the court’s ultimate conclusion, but this determination cannot be reached without evidence explaining why the restriction is unreasonable. For employers, this decision means that former employees cannot avoid the litigation process if the underlying noncompete falls within generally accepted parameters.

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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