Top Eight Elements of a Non-Compete

Friday, July 27 2012 14:40 Written by  Bill MacMinn

Employment agreements, especially those for key employees which include non-competition terms, must be carefully drafted.  What should they include?  Here are eight (what’s magic about ten?) musts: 

1. Define the Restrictions. The non-compete should, first and foremost, clearly define the prohibited zone by industry segment, by geography and by time. Because these covenants are disfavored in the law (certainly by every trial court which I’ve ever asked to enforce one of these agreements) employers must leave no doubt about the restrictions and be able to tie each to an identifiable protectable interest.  The covenants are not enforceable unless they are required to protect such interests, and then only to the extent the restrictions are reasonable. 
  
2. Protectable interest?  Courts will not enforce these covenants unless the employer has an interest which can only be protected by the restriction.  Eliminating competition is not a protectable interest but, for example, protecting customer relationships is. Consider how the particular employee could hurt your business and tailor the restrictions to provide protection in those areas.

3. Reasonable?  A covenant prohibiting competition anywhere in the country is not likely to be enforced where the employee’s relationships were confined to one state or region of the country.  Such a broad restriction would likely be found to be unreasonable.  Similarly, temporal restriction should be limited to the time required to give the employer’s new representative time to meet and solidify relationships with the customers. 

4. Don’t forget to protect your people.  A well drafted employment agreement will include provisions which prohibit the employee from inducing your employees to move to the new employer. Losing one key employee is bad enough; losing three or four may be catastrophic. 
 
5. What happens if the employer sells the business?  Unless the covenant can be assigned, it is lost and the employee is free to compete.  Restrictive covenants are important assets of the business.  Absent assignability, the value of those assets is lost if the business is sold.

6. A tolling provision?  It may take some time for an employer to learn that a former employee has violated the covenant.  Litigation to stop that violation takes more time.  A well drafted document will include a tolling provision which stops the clock from running while the employee is in breach. 
 
7. Protect confidential information.  The employment agreement should protect confidential information and trade secrets.  Employees are often privy to sensitive information which is necessary to do their job.  When they leave employment, that information should stay behind.  Make sure that the employment agreement provides that confidential information and trade secrets will not be “used or disclosed” after the sale.  Define confidential information as broadly as possible, but keep in mind that it does not include information known to the public or easily discoverable.

8. Make violation risky.  The former employee must know that if he chooses to violate, it will cost him.  The tolling language, mentioned above is one way to get that point across.  Another is to provide for recovery of attorney’s fees if the restrictive covenants are violated and enforcement litigation results.

There is a large body of state specific law surrounding the interpretation and enforcement of these agreements.  Make sure the attorney who you engage is experienced in this area of the law.

Last modified on Tuesday, May 07 2013 20:49
Bill MacMinn

Bill MacMinn

Bill concentrates his practice in the area of litigation, including Commercial Litigation, Personal Injury, Products Liability, Employment Litigation, Estate Litigation, Real Estate, and Arbitration. He represents a broad spectrum of individuals, corporations and institutions in commercial, employment litigation, collection, construction and personal injury actions. He has expertise in a wide variety of venues in Bucks and surrounding counties, and in the United States District Court. Bill also has extensive experience in Alternate Dispute Resolution forums, including participation in the American Arbitration Association, private arbitrations and private court systems. He is frequently appointed as arbitrator.

To view Bill MacMinn's full profile, click here.

Leave a comment

Blogger Bios

  • Bill MacMinn Bill MacMinn
    Bill concentrates his practice in the area of litigation, including Commercial Litigation,…
  • Christopher D. Wagner Christopher D. Wagner
    Christopher Wagner is an experienced and results-driven business law attorney with a comprehensive understanding…
  • Elaine T. Yandrisevits Elaine T. Yandrisevits
    As an estate planning attorney, Elaine Yandrisevits is committed to guiding individuals…
  • Elizabeth J. Fineman Elizabeth J. Fineman
    Elizabeth Fineman concentrates her practice on domestic relations matters and handles a…
  • Gabriel Montemuro Gabriel Montemuro
    Gabe’s practice focuses on litigation, including commercial litigation, personal injury, estate and…
  • Janel Clause Janel Clause
    Janel Clause focuses her practice on business and corporate law, serving as…
  • Jennifer Dickerson Jennifer Dickerson
    Jennifer Dickerson is committed to a career focused on helping individuals and…
  • Jessica A. Pritchard Jessica A. Pritchard
    Jessica A. Pritchard, focuses her practice exclusively in the area of family…
  • Joanne Murray Joanne Murray
    Joanne concentrates her practice in the areas of Business Law, Business Transactions,…
  • Jocelin A. Price Jocelin A. Price
    As an estate planning practitioner, Jocelin Price knows that the work of…
  • Lisa A. Bothwell Lisa A. Bothwell
    Lisa Bothwell counsels corporate/business clients on the formation, operation, acquisition, and sale…
  • Lynelle Gleason Lynelle Gleason
    Lynelle A. Gleason has spent her legal career in Bucks County, representing…
  • Megan Weiler Megan Weiler
    Megan Weiler is a skilled advocate dedicated to guiding clients and their…
  • Melanie J. Wender Melanie J. Wender
    Melanie J. Wender is a dedicated and supportive advocate for individuals and families…
  • Michael Klimpl Michael Klimpl
    Michael’s practice areas include Real Estate, Municipal Law, Zoning and Land Use, Employment…
  • Michael W. Mills Michael W. Mills
    Mike is devoted to helping businesses build value and improve working capital,…
  • Patricia Collins Patricia Collins
    Patty has been practicing law since 1996 in the areas of Employment…
  • Peter J. Smith Peter J. Smith
    Pete is a business lawyer and trusted partner to his corporate clients…
  • Stephen M. Zaffuto Stephen M. Zaffuto
    Stephen Zaffuto is a skilled and insightful Corporate and Real Estate attorney…
  • Susan Maslow Susan Maslow
    Sue concentrates her practice primarily in general corporate transactional work and finance…
  • Thomas P. Donnelly Thomas P. Donnelly
    Tom’s practice focuses on commercial litigation and transactions. In litigation, Tom represents…