It happens often: A company owner discovers that one of its projects has been diverted to a competitor. The owner digs into the situation and finds, to his surprise, that the customer’s emails directed to the company’s project manager asking about pricing alternatives never got to the owner. They were instead apparently given to a competitor by the project manager who, in turn, provided the details needed by the customer to make its final decision. Everyone expects competition, but none of us wish to see our own employees participate in such a hijack.
This is why a non-compete agreement is so important. Companies want to be sure any employee considering a move to a competitor, as well as the competitor, understand the company’s customers, business and know-how are not going to be transferable with the employee. An employee may decide to leave, but the company’s critical information stays at the company.
But for these non-compete agreements to be enforceable, they need to be crafted properly. The company must have legitimate business interests it seeks to protect, such as proprietary and confidential information, trade secrets, pricing and customer preferences—anything that shouldn’t get in the hands of a competitor. Having established this, an employer seeking to enforce a non-compete must have an agreement that isn’t too broad, that is limited to a specific geographic area related to the employer’s business and that isn’t too long in duration (two years has become customary in most jurisdictions).
A lot of folks may believe that these agreements aren’t really enforceable, especially if the employee does something they think is not fair. But these agreements are generally enforceable. A recent case illustrated the point.
The company with a non-compete agreement in its favor sued its ex-employee and the company he went to work for when it discovered he was violating his non-compete agreement. The employee argued he resigned because the company had modified its compensation structure. This, he believed, cancelled out his obligation’s under the non-compete he had signed. The court did not agree. The court determined the agreement not to compete should not be impacted by the other issues. The existence of a claim against the company, even if valid, should not overcome the enforcement of the non-compete.
Non-compete agreements are an important element in any employment relationship. Crafting them properly, however, can make the difference between success and failure in any enforcement action.