Sound legal guidance today can provide ample protection down the road
With our vast experience representing both employees and employers in this area, you can count on us to create, structure, investigate, and protect your legal rights as an individual or a business.
If you are asked to sign or have already signed a non-compete agreement, we will:
- review the proposed agreement to ensure your best interests are covered
- handle the complex investigation, discovery, and preparation needed to defend you
- try to find a way to allow you to continue working in your chosen field, and
- protect you in your future career.
If you are an employer considering a non-compete agreement, we will:
- protect your business by creating structured, customized contracts to meet your specific needs
- bring appropriate action to enforce your agreements, and
- defend your business if a former employee breaches a non-compete agreement.
Non-compete agreements can have a sizable impact on your business’ success or your personal career, now and in the future. Sound legal guidance today can provide security down the road. Learn how to protect yourself now.
Enforcement of Non-compete Agreements
If an employer believes that a former employee is violating a non-compete agreement, the employer must first decide if enforcing the agreement is worth the trouble and potential legal costs. It may be that the ex-employee is in technical violation of the agreement, but the violation is not causing any real harm to the employer. In that situation, it would not make sense for the employer to spend money on a lawyer if there is no real benefit to be gained by enforcing the agreement.
Assuming that the employer concludes it is being harmed, and enforcement is, therefore, worthwhile, the next step typically will be that the employer’s attorney will send a cease and desist letter to the ex-employee, and possibly to his or her new employer. The letter will advise the former employee that he or she is in violation of the non-compete and demand that the violation be discontinued. Usually, this means either resigning from the job that violates the non-compete or discontinuing operation of the ex-employee’s new business which is in competition with the former employer.
If the former employee refuses to comply with the cease and desist letter, the company’s next step is to file a lawsuit alleging breach of contract and seeking enforcement of the non-compete. The suit will ask the court to issue an injunction – a court order directing the ex-employee to cease further conduct that breaches the non-compete – along with a judgment in the amount of the monetary damages, if any, the company has incurred as a result of the violation of the non-compete. If faced with such a lawsuit, the former employee should hire an experienced attorney if he or she wants to contest enforcement of the non-compete agreement.
Once a lawsuit is filed, it’s up to the court to decide whether to enforce the non-compete. Whether a specific agreement is enforceable depends in large part upon which state’s law applies to the agreement, and there is tremendous variation from state to state. Some states will enforce non-competes only in limited circumstances. Some allow enforcement but restrict the duration or the fields from which an employee can be prohibited from working. California bars non-compete agreements altogether, but other states, like Florida, view protection of company information as especially important and therefore enforce non-competes strictly. As a result, an agreement that is enforceable in one state may be void in another.
Historically, under the English Common Law system largely adopted in the United States, non-compete agreements were viewed as an unenforceable restraint on trade. The common law favored free-market competition and weighed a worker’s right to earn a living as more important than a business’s right to protect itself from potentially unfair competition. In the more modern era, courts began viewing non-compete agreements as more of a private contractual matter between employer and employee and less of a question of public policy.
Increased enforcement in the courts has inspired many state legislatures to enact laws placing limitations on non-compete agreements. Because California’s legislature thought that any restrictions on a worker’s right to earn a living are unfair, it banned non-competes altogether, other than in a very few, limited circumstances, such as when the former employee was an owner of the employer-business. California views non-competes so unfavorably, that employers are not even allowed to ask employees to sign them, and California courts usually will not enforce otherwise valid non-competes executed in another state by an ex-employee now working in California.
Most states do allow non-compete agreements, though they are mostly viewed with suspicion. In deciding whether an individual agreement is enforceable, the factors usually considered by the court are (1) the potential threat to the employer; (2) the hardship that would be placed on the employee if the agreement is enforced; (3) whether the agreement is supported by adequate consideration; and (4) whether there is any public interest in preventing enforcement.
Because these factors are largely subjective, much depends on how the court views the specific facts of the case before it. Whether a business purpose is indeed legitimate will depend upon the nature of the employer’s business and the precise interest asserted. For the most part, if a legitimate business purpose is not shown by the employer, the non-compete will be unenforceable. The purpose cannot be just to discourage employees from leaving, or to punish those who do.
Courts generally require that, for a non-compete to be enforceable, it must set forth reasonable, well-defined limitations on the time, scope, and geographic area of the competition restrictions. The agreement should not be any more restrictive on the former employee than what is reasonably necessary to protect the employer’s interest. If an agreement is found to be more restrictive than necessary, the court can either refuse to enforce it or limit its application to the point that it becomes reasonable.
The “reasonableness” of an agreement’s scope, time, and geography restrictions will depend upon the nature of the employer’s business and the interest being protected. A non-compete that prohibits an employee from ever again working in a field in which the employer does business will almost never be enforceable, even if it is narrowly limited in scope and area. Likewise, it is usually not reasonable to prohibit a former employee from working in a geographic area in which the former employee has no business presence; nor is it reasonable to prohibit the employee from working in a business field in which the employer is not involved. In this way, a non-compete agreement in favor of a large company doing business nationwide in a wide variety of fields might be enforceable where the same agreement, if in favor of a more limited, regional business, might be unenforceable.
A few states, such as Utah, have enacted legislation limiting the duration of non-competes. And some states limit geographic restrictions to areas in which the ex-employee actually worked. But, for the most part, whether a non-compete agreement is overly burdensome on the ex-employee depends upon the specific facts of the case and the language of the agreement itself.
Courts will sometimes consider facts not directly related to the noncompetition restrictions when deciding whether a non-compete places an unreasonable hardship on the former employee. The manner in which the employment relationship ended, for example, can affect how the court will view the case. If the employee voluntarily resigned to take a job with a competitor, or to start a competing business, the court is more likely to enforce the non-competition agreement. On the other hand, if the employee was laid off, or arbitrarily terminated, the court will be more likely to view restrictions on the ex-employee’s ability to earn a living as overly burdensome. As a matter of public policy, it is better to have a laid-off employee gainfully employed by a competitor than unemployed.
Some courts require employers to demonstrate “special facts” which would give the former employee an unfair competitive advantage if a non-compete agreement is not enforced. Special facts could include specialized training provided to the employee beyond general skills easily accessed by the public, employee access to trade secrets or confidential employer information not easily ascertainable outside the company, or close relationships between the ex-employee and company customers which could result in loss of company goodwill if the employee is allowed to compete against the former employer.
Public policy can also be a factor in determining whether the type of industry restricted by a non-compete should be limited. For certain professions, such as attorneys and physicians, courts have found that it is contrary to the public’s interest to enforce noncompete agreements. Fields in which restrictions are disfavored as a matter of public policy usually involve personalized service by a professional. A client represented by a specific lawyer whose employment with a law firm ends might suffer if that lawyer is prohibited from continuing representation due to a non-compete signed by the lawyer in favor of the former firm. Similarly, a doctor who has been treating a patient for years should not, as a matter of public policy, be prohibited from continuing treatment. In Texas, a non-compete agreement is unenforceable to the extent it would prevent a doctor from continuing to treat a patient already under the doctor’s care. With lawyers, the rules of professional conduct place some limitations on the application of noncompetes.
How a court will treat an overly broad non-compete agreement again depends upon the laws of the state governing the agreement. Some courts will limit the agreement to the point where it becomes reasonable, or only enforce the portions of the agreement which are reasonable, while others will throw it out altogether. If a court finds that a non-compete agreement is valid and enforceable, the ex-employee may be ordered to leave his or her new job or cease operation of a business in competition with the former employer. In cases in which the former employer is able to prove that it suffered financial damages as a result of the ex-employee’s violation of the non-compete, the court may also enter a judgment for money damages against the former employee.