Noncompetition & Other Restrictive Covenants

One size most certainly does not fit all when it comes to noncompetition agreements.  Every state has its own requirements when it comes to the enforceability of employee noncompetition agreements.  In some, such as California, noncompetition agreements are unlawful by statute.  In other states, such as Colorado, noncompetition agreements may only be enforced in certain specific settings, such as the sale of a business.  In many states, however, noncompetition agreements will be enforced if they protect the company’s legitimate business interests and are reasonable in time, geographic scope and the scope of the limitations on the employee’s ability to perform his profession.  Where noncompetition agreements are not void as a matter of law, they are great fodder for litigators because there is no uniform definition of “legitimate business interest” and no consistent test to determine if the time, geographic scope and the scope of limitations on the employee’s ability to perform his profession are “reasonable.”  These criteria are very fact and case specific.

Although most litigation of noncompetes focuses on whether the business interests of the employer are “legitimate,” and/or if the geographic and temporal scopes of the limitations are “reasonable.” Equally important to the enforceability of a … Keep reading

While many employers take comfort in knowing that some or all of their employees have agreed to non-compete covenants, obtaining and enforcing such agreements does not come without costs.  As such, it is important for in-house counsel to explore with their business clients whether it really makes legal and economic sense to seek such agreements.  Among the issues you may want to raise are the following:

Issue # 1: How Likely is it that the Contemplated Non-Compete Would Be Enforceable?

Most in-house counsel who have had any dealings with non-compete covenants know that if such a covenant merely limits competition, it is not enforceable.  Because many business clients do not have a clear understanding of this counterintuitive principle, in-house counsel can save a lot of future angst if they make sure that the business people know right from the start that a non-compete covenant only is enforceable if it is necessary to protect confidential information, goodwill or trade secrets.  Indeed, because there are many situations in which none of these three interests will be protected by a non-compete, if your client knows this up front, s/he may decide that it is not worth the time and expense to even … Keep reading