What Is a Non-Compete Agreement
Non-compete agreements are specific legal arrangements in which an employee agrees not to engage in any business, professional or commercial activity that competes with the employer. These agreements are there to help safeguard the employer’s interest in going after a larger market, without worrying about someone with their internal business information competing against them directly. It is important to note that non-compete restrict non-solicitation: there are two separate issues with a non-compete agreement. One issue is that it restricts the employee’s ability to earn a living , so the terms must be reasonable. The other issue is that the company has a business interest—protection of proprietary information or trade secrets—of which it needs to protect itself.
These agreements typically cover five columns of information:
- A description of the products or services provided
- The geographic area where the restriction applies
- The time the agreement is applicable (i.e., period of time restricted)
- The scope of the agreement (i.e., activities outside the applicable industry)
- Other applicable restrictions, if any
There are many industries that commonly utilize non-compete agreements. For example, they often apply to:
· Technology companies
· Telecommunication and broadcasting
· Restaurant management companies
· Sales and marketing companies
· Financial institutions
· Franchisees and franchisors
· Healthcare practices
· Manufacturers
· Transportation and logistics companies
When to Consult with a Non-Compete Agreement Lawyer
A non compete lawyer can be useful for a number of situations. For example, if you are asked to sign a non compete agreement then you should consider hiring a non compete lawyer to help review the employment agreement. There can be issues in the non compete clauses and in the associated ones as well. For example, there can be issues in the definitions used for non compete terms. The lawyer may need to negotiate for you to add a non compete lawyer to make sure something is realistic or fair.
A business or employer may consider hiring a non compete attorney to craft an agreement for use when they make an offer to their new employee or when they update their employment contracts. It has become a common offering when doing an employment agreement that there is a non-compete. Therefore it is possible or even a near certainty that consideration will be given to having the lawyer write an enforceable one. This can also include considering whether that is offered at all.
A larger company which requires employees to sign the same non compete language might hire a business noncompete lawyer to review their agreement. There can be issues if they do not conform to current law or have not been updated when previous employees were let go. A larger business also may want their non compete attorney to craft language to be entered into an arbitration clause for their non compete agreement to cover what happens if someone breaches the agreement.
The Advantages of Consulting a Non-Compete Agreement Attorney to Draft Your Agreements
One of the significant advantages of having a legal expert prepare your non-compete agreement is that they will ensure that the language in the agreement is as specific as possible and limits your employee’s ability to leave the company in an enforceable manner. A legal professional will also ensure that your non-compete agreement complies with your state law in order to maximize your protection under the law. A good attorney will always keep the industry that you are in mind, making sure that your agreement will work for you.
For example, if you are in the health care industry, your non-compete agreement will be more restrictive than if you are in a field such as hospitality or retail.
Additionally, a lawyer will say what makes sense for your organization as far as time and territory in your non-compete goes. Depending on how long it takes for a company’s competitive advantage to erode, the time limits may be longer than they would be for a different company.
A lawyer will also know how to enforce a non-compete in your particular state. For example, some states allow agreements to cover entire states and others do not, and a lawyer will also have experience in enforcing the non-compete agreement.
Disputing Non-Compete Agreements
If you believe the non-compete agreement is unfair, overbroad, impossible to follow or unnecessary, there are several ways to attack it, with an attorney’s help.
One of the ways an attorney might be able to help is by arguing that the existence of the non-compete agreement draws into question whether the employee actually has any knowledge that would need to be legally protected. In other words, a non-compete agreement should pass this test: Does the employee possess unique knowledge about the company that could not easily be obtained by someone else and that, if released to a competitor , would risk harm to the employer?
If the attorney believes that the former employee has limited knowledge and skills that the employer hasn’t gone to great lengths to protect, have zero customer contacts and no ability to poach customer employees, the attorney may ask the court to throw out the agreement or just the restrictions.
Suppose you are a secretary to a mid-level manager at a company that doesn’t have proprietary formulas, sensitive marketing plans, experimental designs or technical processes that need to be protected. In that case, the argument becomes if we can prove in front of a judge that the employee has no sales experience, customer knowledge or business acumen, then the restriction is poisoned by that and, therefore, cannot be validly used.
What Employers Need to Know
Geographic Scope: The place where restrictions apply: In some states, such as New York, there does not have to be a physical customer contact in order for a non-compete to be enforceable. If a salesperson travels nationwide, it is common to justify a nationwide restriction, especially if the employee can demonstrate that they were compensated on territory-based commissions. However, in other jurisdictions, such as Texas, there must be physical customer contact and the territory must be limited to the area of contact. In other words, a company cannot prevent a salesperson in Houston from soliciting customers in the Dallas area. The restriction cannot be so broad that it has the effect of destroying the employee’s ability to earn a living. Even if there is physical customer contact, if the employer conducts business with a majority of its customers from physical locations where its competitors are located, the restriction may be unenforceable. Some courts will advise that customer locations should be listed. In Texas, the geographic scope is tied to the area where the employee worked and developed relationships. However, in states like California and New Jersey care should be taken in limiting the geographic scope to areas in which the former employee worked, developed relationships with customers, and had access to confidential information about such customers.
Duration: As a general rule, the duration of an agreement should be limited to what is necessary to protect the former employer’s legitimate interest. Any restriction longer than one or two years is viewed with disfavor and may be struck down. Also, unless a company is dealing with trade secrets, time limits greater than the former employee can work for the company are not going to be enforced. In Texas, the duration of the agreement must be tied to the cost to the employer of training the employee, and how long would be reasonable for the company to train the employee.
Balance: The geographic area of the employer’s concern, the duration of the employee’s continuing obligation to the former employer for training the employee, and the importance of protecting employer interests against the interests of allowing an employee to work will all be reviewed. If the restriction will prohibit the employee from making a living, it will not be enforced. The employer always has a burden of proof to justify the need for the restriction. Courts will be skeptical where the agreement restricts a former employee from using skills or experience acquired in the course of employment and will be more apt to decline to enforce an agreement if it appears to be overreaching.
Choosing the Right Non-Compete Agreement Attorney
How can a business ensure that they select the correct attorney to represent them in connection with their non-compete agreement needs? There are so many lawyers out there, how do you choose the right one for you? To begin, you may want a non-compete attorney who is experienced and knowledgeable. But, what do these phrases mean? I should start by noting that experience and knowledge about non-competes alone are not always sufficient – I get calls all the time from entrepreneurs who have contacted a big law firm, or an attorney who does not appear to practice in the area of non-competes, and I know that they are not going to get competent advice – especially if the attorney is a litigator that also does non-compete work. I know this from experience, because I am in those courts all the time and it is just that simple to tell who does non-compete work and who does not. You want someone who spends most of their time in courtrooms handling trade secret and non-compete cases – period. If you call Gilson Nafziger or me we would certainly be able to give you the right advice and point you to others if you have an out of state need.
So, going back to experience and knowledge: Experience and Knowledge: Someone who has been practicing non-compete law for years (or even decades) should have developed a knowledge of industry practices. They should understand why non-compete agreements exist, what their purpose is and how to best draft and enforce them.
They should have experience: Someone experienced will know the different non-compete laws across the states, and they should know how to tailor them so that they are enforced in some states and not in others. An experienced non-compete lawyer will have knowledge of not only state laws, but also federal statutes and how they impact non-compete agreements.
So, the way to vet your candidates is to interview them by telephone and determine how long they have practiced non-compete law, whether any of the work is supervised and what other areas they practice in. If you are happy with their answers and feel that they are experienced and knowledgeable , then call them to find out if the person you are speaking with is the one who is going to be doing your work. I know that this sounds elementary, but you would be surprised at how often a client calls me to speak with the secretary, paralegal, or another junior associate – and not the partner. When I take the call, I am more than happy to let them know that I will likely be the one handling most of the work. You need the partner, or lead attorney, to prepare your agreements, pleadings and other correspondence and not just a junior associate or paralegal. Not only does this help you save billable hours, but you need someone who is sufficiently knowledgeable on non-compete issues to properly draft and tailor your agreement.
Your non-compete attorney should also have considerable experience in the area of non-compete litigation and should have tried many cases to verdict. Why is this important? Well, if your attorney understands how a case is going to go if there is a dispute, it will help them draft a defensible agreement. In addition, someone like me who has handled dozens of trials has a vast experience base with different types of businesses and industries. This means that they have seen many of the different documents, contracts and agreements that go to the heart of your business. It is important that your lawyer understands exactly what you do and be able to understand your business model.
In addition, when it comes time to litigate, it is critical that you have an attorney who knows how a judge will evaluate your agreement. Judges almost always take the side of the employee in holding non-competes unenforceable – especially if it is judged to be too broad in scope. So, if you are hiring an attorney, one thing that I have found is that some attorneys will refuse to take a case to trial. This type of non-compete attorney cannot take your agreement and defend it in court if they do not understand the agreement and know the kinds and types of cases that are being brought in court. Selecting the right attorney for your company and investment is critical because if your non-compete agreement is not litigated correctly, you may lose everything.