A non-compete clause, or covenant not to compete, is a contract that has become more and more popular in the US. It is an agreement between an employer and employee which would force the employee to refrain from competing with the employer, or taking employment with a competitor. The usual non-compete clause will include three very important criteria: the timeframe, the geographic area, and the field of employment.
Those criteria are very important because if they are too strict, the non-compete clause will be invalidated by a court. These agreements may not prevent an employee from being forcibly unemployed. While there may be exceptions, a non-compete clause is only enforceable to the extent which it protects legitimate employer interests. So, the non-compete clause cannot last too long; cover too wide a geographic area, or; prohibit a former employee from engaging in too many types of businesses.
To determine what is too wide a geographic area, courts often will look to the the area itself, and the nature of the work. What constitutes too wide of an area in New York City, might not be too overburdening in a rural Midwestern county. The same factors may apply for the time frame, and what constitutes a different business. One of the leading case on determining whether a non-compete clause is overly broad is Hopper v. All Pet Animal Clinic, Inc. 861 P.2d 531 (Wyo. 1993). In that case, a veterinarian had signed a non-compete clause with his employer. He would later open his own veterinarian practice within the same city. The clause had a geographic limitation of five miles, pertained only to small animal veterinarian work, and a time limitation of three years. The court balanced these factors against the legitimate interests of the employer. The court looked to the employee’s access to customers, pricing policy, and other job training skills. Traditionally courts also look at trade secrets, confidential information, and special influences when deciding an employer’s legitimate interest. The court noted that the employee’s services were not unique or uncommon. The court held that the geographic limitations and the scope of the field were reasonable and upheld those provisions. However, the court struck down the time limitation and held that three years was unreasonable, and therefore unenforceable. One year would have been reasonable , since within a year all regular customers would have cycled through, and a replacement veterinarian could have been found. In Wyoming, where this case was, a court can modify an agreement, and uphold some provisions but not others. Other jurisdictions will view the agreement as entirely enforceable or entirely unenforceable.
The manner in which a court will analyze an agreement varies greatly depending on the state law which rules. The most notable state analysis is California, which has banned most non-compete clauses. California views them as unenforceable for being contrary to public policy. With such a great difference between how the different jurisdictions, it is important to contact a lawyer to find out how your state views non-compete clauses. A lawyer will be able to answer important questions like: Is the breadth of the agreement reasonably necessary to protect the interests of the employer? Does the breadth of the agreement place an unreasonable burden upon the former employee? Is the agreement contrary to public policy or need? There are no bright-line rules regarding the enforceability of a non-compete agreement, and this is why it is important to contact a lawyer to make sure your contracts are enforceable. Contact the attorneys at Stone Law, P.C. if you have any questions 732-444-6303.