Non-Compete Agreements

Non-competition agreements are promises by employees to refrain from competing against their former employer for a time after their employment relationship ends. Non-competition agreements are cheap and easy for employers to get, usually by offering new or continued employment in exchange for them. Since most states permit employers to reject applicants or terminate employees who refuse to sign non-competes, employees usually have little choice but to accept them. Once an employee accepts a non-compete, it survives the life of the employment relationship and then lives on to restrict the employee from engaging in the same line of work. 

Although cheap and easy for employers to get, non-competition agreements are ruinously expensive for employees. They narrow career paths, block opportunities and force employees to stay in undesirable jobs. And they can effect third parties, like customers and patients, who might find their former hair dresser or doctor refusing to provide service or care, since under threat of non-compete litigation. 

Courts enforce reasonable Non-competition Agreements

Contract law requires courts to enforce clearly written contracts according to their terms. Contract law presumes that the parties look out for their own interests when bargaining, and agree only to acceptable terms. Consequently, courts will not review contract for fairness, and generally enforce them as written. In fact, contract law prohibits courts from rewriting ordinarly contracts, even if unfair. As a result, once employees agree not to compete against former employers, courts should enforce the restrictions, even if unreasonable or unfair.

Courts do not, however, enforce unreasonable restrictions against competition. Long ago, when a village had only one blacksmith, courts would not enforce the blacksmith's non-competition agreement at all, considering it a restraint on trade and against the public policy favoring competition. Much has changed since that time, though. Today, a mobile workforce in a digital economy creates opportunities for employees to compete unfairly against their former employers. Courts therefore now enforce non-competition agreements, but only to the extent necessary to protect the legitimate interests of employers.

Employer legitimate interests include protecting a customer base, trade secrets and an employer’s investment in training or educating employees. If restrictions prevent only ordinary competition though, courts will not enforce it. As a general rule, a restraint against ordinary competition remains against public policy.

Courts re-write Overly Broad Non-competition Agreements 

When a non-competition agreement protects some legitimate interests but also prevents ordinary competition, courts can enforce enforce only the restrictions that protect the legitimate interests. The process of striking illegitimate restrictions is known as “blue penciling,” which describes the pre-computer practice of manually crossing out terms on a piece of paper. Today, most non-competition litigation involves the extent to which the court will enforce restrictions, and not whether the court will enforce any restriction at all. If the court finds that an otherwise legitimate restriction goes too far, it will enforce that restriction, but only to the point necessary to protect the employer's legitimate interests.

Since employees can escape only those contractual restrictions that a court finds too restrictive, employees might win the non-competition battle but lose the non-compete war. For example, if a court struck a three year agreement not to compete as too long, but left the restrictions in place for two years, the two year restraint would still block most opportunities.

Employers can sue the new Employer/Competitor

When, as is typical, employees accept employment with a competitor, the employer can drag the competitor into the non-compete battle on a theory of tortious interference. There, the employer claims that the competitor induced the employee to violate the employee’s non-compete for improper reasons, or by using improper means.  As a result, many non-competition battles end before they start, with a stern letter from the employer’s attorney threatening suit against the competitor. Competitors faced with such threats often choose to avoid the litigation by withdrawing the offer of employment. This proves disasterous for the employee who left otherwise secure employment to go to work for the competitor.

Strategies for Avoiding Unfair Non-competes

Employees should first avoid agreeing to non-competition agreements in the first place. To borrow from Nancy Reagan, Just Say No. Although this is easier said than done given the need for a job, employees should, at a minimum, bargain with their employers against overly restrictive covenants against competition. Employees can argue that reasonable restraints are good for everyone, since neither party wants to end up in court.  From a tactical standpoint, negotiating also delays the creation of an agreement, and it could avoid the formation of one altogether. This is because proposing a counter-offer operates by law as a rejection of the employer’s initial offer. Unless the employer accepts the employee’s counter-offer, or the employee gives in and accepts the initial offer, the parties do not have an offer and acceptance, and thus did not form a contract.

If an employee has to accept an agreement with excessive restrictions, as is all too often the case, avoiding those restrictions is difficult, but not impossible, after the fact. These employees need the help of experienced non-competition lawyers, who can identify the legitimate interests, if any, that a court will enforce, and guide the employee around the enforceable restrictions. Attorneys can also predict with reasonable accuracy the cost of litigation and its likely outcomes, enabling employees to evaluate the benefits and costs of engaging in non-competition battle. Employees should consult experienced non-competition attorneys before they leave secure employment. Finally, when employees leave employment to compete against their former employer, they must not take any unfair advantage of their former employer. Once a court finds that employees helped themselves to the employer's trade secrets, like the password protected customer list, it has little patience for the employee's complaint that the agreement to avoid such behavior is too broad.

 

Articles (38)

Employee Poaching & Non-Compete Agreements
Over the past decade, there has been a dramatic increase in non-compete litigation. This is not anecdotal— it is statistical. State and federal court dockets confirmed that non-compete litigation is... applies to Florida

Can they enforce my Non-compete if they Fired Me?
Non-competition agreements hit fired employees particularly hard, especially when the employer fires the employee without warning or cause. Non-competes hits fired employees with a second whammy, a ba... applies to All States

Overview of U.S. Non-competition Agreements
A non-competition agreement, also know as a covenant not to compete, is a promise by an employee not to compete with his or her employer for a specified time, in a particular place or in a particular ... applies to All States

Help for Non-competition Problems
Non-competition agreements can block promising career paths. Even so, every state enforces them, but within limits. For help solving your non-compete problems, learn the limits. Neil Klingshirn has wr... applies to All States

Ohio Physicians and Doctor non-competition agreements
Non-competition agreements are generally disfavored in the medical profession, but they are not per se unenforceable. Ohio Urology, Inc. v. Poll (1991), 72 Ohio App.3d 446, 451; General Med., P.C. v. ... applies to Ohio

Enforcing Non-competition Agreements after the Sale of a Business
If an employer with non-competition agreements sells its business to a new buyer, the buyer does not necessarily acquire the old employer's/seller's rights in its non-competition agreements. The buyer... applies to All States

Fighting Florida Non-competition agreements
Many Florida employees believe that, just because an employer forced them to sign a non compete agreement or be fired, they are not bound by the non-compete agreement. That is just not true. Continued... applies to Florida

Non-competition Agreements in Ohio - History and Law
History of non-competition agreements in Ohio As in other states, Ohio courts at one time viewed noncompetition agreements with some skepticism. Agreements in restraint of trade, including noncompetit... applies to Ohio

List of Employment Law FAQs
Non-competition Severance pay Retaliation Sexual harassment Family leave Discrimination Wrongfully accused Overtime Tax Issues in Settlements Healthy Families Act Smoke free workplace Ohio non-compete... applies to All States

Florida's Statutory History for Non-Compete Agreements
Florida law governing non-compete agreements has gone through three major variations since 1953. The enforceability of a covenant not to compete under Florida law is governed by the law in effect at t... applies to Florida

Enforcability of Texas Non-competition Agreements.
To be enforceable under Texas law, a non-compete must be: ancillary to or part of an otherwise enforceable agreement at the time the agreement is made; to the extent it contains limitations as to time... applies to Texas

Injunctions Barring Enforcement of Invalid Non-competes
Employers who enforce non-competition agreements have long sought temporary restraining orders (TROs) and preliminary injunctions to bar employees from violating valid non-competition agreements. Cour... applies to All States

California Non-competition Law
At one time California courts enforced contractual restraints on competition as long as they were reasonably imposed. However, in 1872 California adopted a public policy favoring open competition and ... applies to California

Virginia Non-competition Law
Restrictive covenants are disfavored in Virginia as restraints on trade. Virginia courts will enforce restraints in non-competes only if the restraint is: reasonable in that it is no greater than nece... applies to Virginia

Indiana Non-competition Law
Indiana courts disfavor covenants not to compete, which they view as in restraint of trade. Harvest Ins. Agency, Inc. v. Inter-Ocean Ins. Co. 492 N.E.2d 686 (Ind. 1986). Indiana courts strictly constr... applies to Indiana

The Role of Contracts in Employment Law
Contracts play a central role in employment law. The most basic employment arrangement, at-will employment, is purely contractual in nature. Floyd v. DuBois Soap Co. (1942), 139 Ohio St. 520, 530-531,... applies to All States

Physician non-competition agreements in Michigan
Michigan non-competition agreement law states that an employer may protect an employer's reasonable competitive business interests, but its protection in terms of duration, geographical scope, and the... applies to Michigan

Illinois Non-competition Agreement Law
Illinois courts are reluctant to enforce restrictive covenants and scrutinize them carefully. Nevertheless, Illinois courts will enforce a restrictive covenant if it is ancillary to another transactio... applies to Illinois

Arizona Non-competition Agreement Law
Historically, Arizona courts viewed covenants not to compete unlawful restraints of trade. Eventually, Arizona courts began to enforce ancillary restraints on competition, such as those incident to em... applies to Arizona

Choice of Law in Non-compete Cases
Non-compete laws vary significantly from state to state. California law favors employees, while Ohio law recognizes and protects most employer interests. Thus, the law that a court chooses to apply to... applies to All States

Rescinding Non-compete Agreements after the Employer's Breach
Some states will not enforce a non-compete clause if the party seeking enforcement previously breached a material provision of the contract containing the covenant not to compete. The breach must be m... applies to All States

Michigan Non-competition Agreement Law
The Michigan Antitrust Reform Act generally prohibits any "contract, combination, or conspiracy between 2 or more persons in restraint of, or to monopolize, trade or commerce." Mich. Comp. Laws § 445... applies to Michigan

Preliminary Injunctions in Non-competition Cases
A preliminary injunction is a court order, issued at the beginning of a case, which preserves the relative position of the parties while the case is pending. It usually remains in effect until replace... applies to All States

New York Non-competition Law
New York state courts enforce post-employment non-competition agreements under certain circumstances, but their examination of restrictive covenants is rigorous. New York courts adhere to a strict app... applies to New York

Pennsylvania Non-competition agreements
“Non-competition” or “noncompete” agreements are one of a particular kind of contract, termed “restrictive covenants,” under Pennsylvania law. As in most states, noncompetition agreements ... applies to Pennsylvania

Trade Secrets Overview
A trade secret is information that is not known to the public, that its owner takes steps to keep from public knowledge and that has value because it is not known to the public. The owners of trade se... applies to All States

Executive Orders affecting Unions issued by the Obama Administration.
President Barack Obama signed a series of executive orders in his first month in office favorable to organized labor. They include: Notification of employee rights under federal labor laws ; Economy i... applies to All States

Tortious Interference Involving Non-Competition Agreements
In most states, a third party cannot interfere with the contractual or prospective business relationships between two other parties, absent a proper purpose. This claim is known as “tortious interfe... applies to All States

Severance Package
A severance package describes the pay and benefits an employee receives when involuntarily separated from a company. Severance packages are voluntary in the United States, so employers do not have a l... applies to All States

Negotiating Severance Agreements
Parties bargaining to reach a mutually acceptable outcome must, as with any negotiation: Have a shared desire to resolve the dispute; Identify the interests at stake; Invent options for mutual gain; S... applies to All States

EEOC Time Limit for Filing a Charge of Discrimination
Before a sexual harassment or other discrimination victim can file suit in federal court, they must first file a charge of discrimination with the Equal Employment Opportunity Commission (EEOC). Feder... applies to All States

COBRA premium subsidy under the Economic Stimulus Package
The American Recovery and Reinvestment Act of 2009 (ARRA), better known as the economic stimulus package, provides "assistance eligible individuals" a 65% subsidy towards their COBRA continuation cove... applies to All States

Arbitration of Employment Disputes
The federal arbitration act (FAA), 9 U.S.C. § 1, et seq . and Ohio’s arbitration act ORC § 2711.01 et seq. , both direct a court to stay trial of a matter that is the subject of a written arbitrat... applies to Ohio

Frequently Asked Question about Non-competition Agreements
Mel's Frequently Asked Questions about non-competition agreements provides an overview of non-competition agreements. It reflects law common to most states, with the notable exception of California. F... applies to All States

How to Hire a Competitor's Employees
Suppose an employee from a competitor applied for an open position with your firm. She did not take any trade secrets from the competitor and will not solicit her the competitor's customers. However, ... applies to All States

Hudson Job Search presentation on Negotiating Employment Agreements
Last night I had the pleasure of speaking to Hudson Job Search . Hudson Job Search is a non-denominational community Christian organization started in 1982. Its vision is to provide confidential outpl... applies to Ohio

Florida's Statutory History for Non-Compete Agreements
Non-Compete agreements have gone through three major variations since. Prior to 1953 1953 - 1996 1996 - Present The enforceability of a covenant not to compete under Florida law is governed by the law... applies to Florida

Employee Poaching & Non-Compete Agreements
This is the post related to employee poaching or raiding and non-compete agreements. This discussion addresses the widespread use of non-compete agreements in today’s economy, issues related to cont... applies to Florida

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