It is not uncommon for high-tech, pharmaceutical and other companies whose business models incorporate highly confidential information or trade secrets to require that their prospective employees sign non-compete agreements prior to or in conjunction with being hired. Also not uncommon is for employees who signed non-compete agreements to be terminated and faced with the prospect of not being able to work in their chosen trades, businesses or professions, or in their chosen geographic area, because of the non-compete agreements signed with their former employers. The focus then becomes whether the non-compete is valid and enforceable.
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Research the law in your state relating to non-compete agreements. Some states have statutes that govern non-compete agreements, while the law of those states without statutes can be found in decided cases. A visit to a local law library --- usually found at law schools and the local courthouse, would be helpful in this regard.
Review the signed non-compete agreement at issue and determine whether it contains the necessary elements of a contract, including but not limited to mutual consideration. The mutual consideration requirement is generally satisfied where an employer discloses confidential information to its employees in return for the employee's agreement not to use that information to the competitive detriment of the employer in the marketplace. Lack of adequate mutual consideration will render a non-compete invalid and unenforceable.
Confirm that confidential information was in fact disclosed by the employer to the employee during the course of employment. As a general matter, courts will enforce non-compete agreements in situations where confidential information was disclosed, but will refuse to enforce such agreements when no confidential information was disclosed or where the confidential information is already in the public domain through no fault of the employee. In situations like the ones described immediately above, the employer has no legitimate business interest in precluding competition and the non-compete agreement will not be enforced.
Check whether the non-compete agreement contains reasonable geographic, temporal and activity restrictions. If an employee's duties and responsibilities were confined to a certain county within a state, a non-compete requirement that prohibits him from working in the entire state would be overbroad and unenforceable. In addition, non-compete provisions that prohibit competition for more than five years are generally found to be unreasonable. Finally, provisions that prohibit an employee from soliciting or doing business with all of his former employer's customers are generally overbroad and unenforceable. Such restrictions should be narrowly tailored to restrict solicitation of only those customers with which the employee worked while the employee was with his former employer.
Prepare and file a lawsuit seeking to invalidate the non-compete agreement at issue. The grounds for invalidation asserted in the lawsuit should be based upon facts that are inconsistent with the relevant law outlined above.
Tips and warnings
- The information provided in this article is for informational purposes only and does not constitute legal advice. Laws relating to different types of agreements or contracts can vary from jurisdiction to jurisdiction. If you have a legal question relating to non-compete agreements, you should consult with an attorney who is licensed in your state.