What Should Employers Do to Make Non-Competes Enforceable?

A note on this post: this blog post is the last post in our series, “Non-Compete Agreements: When are they valid, and when can the new employer be sued for an employee breach?” In this post we will discuss what employers can do to make their non-compete agreements with their employees valid. This will be our last post in the series. If you still have questions after this post, we would be happy to talk to you. Contact us at info@gglawoffices.com to set up an initial consultation.

 

In general, courts do not like non-compete agreements. They feel that these agreements are “restraints on trade” in what should be a free economy. So, there are several things that employers should consider including in their non-compete agreements that might help the court look on them more favorably.

 

Good Cause

You need to have a strong reason to have a non-compete, so make sure your non-compete protects an important business interest. This is important, because courts will examine your reason very carefully to make sure they think it is a good one. Legitimate business interests recognized by courts most often include trade secrets, confidential information, customer/client lists, or near-permanent customer relationships. For a more detailed explanation of each of these interests, check out our previous blog in the series, When is a non-compete agreement enforceable?

*DRAFTING TIP* Make sure your business interest or trade secret is mentioned in the non-compete agreement (vaguely, just enough to identify your interest or what you are trying to protect).

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Reasonableness

Make sure your non-compete is reasonable. Courts will only uphold non-compete agreements that are very narrow and do not restrict the employee too much.

Generally, courts will check to make sure the non-compete is reasonable in:

  • Scope: The geographical area that it covers. If your “business interest” is clients lists and your clients are in Naperville, IL, your non-compete should only be for Naperville or immediately surrounding areas.
  • Duration: The time it extends after the employment ends. This can vary, but for the most part nothing beyond two years will be allowed. Two years is often too long as well, depending on the business interest.
  • Content: The subject matter (what the employee is prohibited from doing). It is better to prohibit the employee from soliciting clients that they worked with while at your business, or something similarly narrow, rather than trying to prevent them from working in an entire field.
  • Situation: Where it leaves the employee. Make sure that your non-compete does not make it impossible for the employee to get a job suited to their training. If you put an employee completely out of the job, the court will work harder to invalidate your non-compete agreement.
  • Clarity: If the non-compete agreement is vague so the employee isn’t entirely sure what is prohibited, the court may throw it out.

*DRAFTING TIP* Think about the goal you are trying to accomplish (the interest you are trying to protect) and draft your agreement as narrowly as possible to reach that goal.

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Provide Additional Consideration

Contracts in general are much more likely to be upheld if there is something in it for both sides. Make sure the employee is getting something for the non-compete, and specify what they are getting in the contract. In at-will employment, keeping their job is not consideration unless the employee keeps the job for 2 additional years without getting fired or quitting. The best consideration that is not usually challenged is an employment benefit of some sort, such as a slightly higher compensation, an extra day off per year, or something similar.

*DRAFTING TIP* Explicitly state the consideration in the contract and make sure it is clear that the employee is getting this additional benefit because of the non-compete agreement.

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Consider Other Choices of Law

If you do businesses in multiple states, and another state’s law is somewhat similar to Illinois’, you can state in your agreement that the other state’s law will govern agreement. It is important to consider alternatives like these, because states vary on how they treat non-compete agreements.

See:

 

Consistent Treatment

Treat non-compete agreements, employees, and business interests consistently to protect your interest.

Even if you put everything you are supposed to in your non-compete agreement, courts want to make sure that everything you put is true. So, act to protect your business interests, have all employees with access to your interest sign a non-compete, and so on.

For example, if you are trying to protect a business secret that 5 employees have access to, make sure all 5 sign non-competes, or the court might not believe that it is a valid secret. Make other attempts to keep the information secret, like making it password protected. Don’t make employees sign the non-compete unless they have access to your protectable interests.

 

Consider Using Confidentiality Agreements

Sometimes a confidentiality agreement works as well as a non-compete agreement. If you are trying to protect secret information, you can probably do so with confidentiality agreements. However, this won’t always accomplish your goal, so make sure to think over your interests and goals carefully before deciding on a contract.

 

Review Current Agreements

If you already have non-compete agreements in place, review them or have an attorney review them for these principles. Now that you know what to look for, you can go back and look at your old agreements. If you discover any possible problems, you might be able to correct them before it gets into a courtroom.

 

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2019-05-09T11:33:54-05:00February 28th, 2014|Employers, Employment Issues, Independent contractors|