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.
Employee Poaching & Non-Compete Agreements
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Can they enforce my Non-compete if they Fired Me?
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Overview of U.S. Non-competition Agreements
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Help for Non-competition Problems
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Ohio Physicians and Doctor non-competition agreements
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Enforcing Non-competition Agreements after the Sale of a Business
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Fighting Florida Non-competition agreements
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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
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Physician non-competition agreements in Michigan
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Illinois Non-competition Agreement Law
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Arizona Non-competition Agreement Law
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Choice of Law in Non-compete Cases
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Rescinding Non-compete Agreements after the Employer's Breach
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Michigan Non-competition Agreement Law
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Preliminary Injunctions in Non-competition Cases
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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
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Executive Orders affecting Unions issued by the Obama Administration.
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Tortious Interference Involving Non-Competition Agreements
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Frequently Asked Question about Non-competition Agreements
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How to Hire a Competitor's Employees
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Hudson Job Search presentation on Negotiating Employment Agreements
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Florida's Statutory History for Non-Compete Agreements
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Employee Poaching & Non-Compete Agreements
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