Non-Compete Agreements – Are They Enforceable?
A common practice today with many companies is to restrict the nature of the possible employment for a worker after they leave the employment of the company. These agreements are often referred to as “non-compete” agreements or “non-competition” clauses. The prohibitions may be contained in either a separate agreement, or as part of another document that sets forth certain other work conditions.
Non-compete and non-competition agreements are often looked at critically by the courts. Under the law, the legitimate rights of employers to protect their interests must be balanced carefully against the rights of employees to be able to seek meaningful employment after they cease work with an employer.
Non-Compete Agreements – Are They Enforceable?
Many companies seek to restrict the freedom of the possible employment for a worker after they leave the employment of the company. These agreements are often referred to as “non-compete” agreements or “non-competition” clauses. The prohibitions may be contained in either a separate agreement, or as part of another document that sets forth certain other work conditions.
Non-compete and non-competition agreements are often looked at critically by the courts. Under the law, the legitimate rights of employers to protect their interests must be balanced carefully against the rights of employees to be able to seek meaningful employment after they cease work with an employer.
In 2018, Massachusetts passed a new law that significantly restricted the ability of companies to enter non-competition agreements with employees. The law prohibits any non-competition arranagement longer than twelve months, except in case of breach, and prohibits non-competition clauses for non-exempt employees (i.e. hourly workers subject to overtime).
What Issues are Examined When Considering Whether A Non-Compete Agreement Is Valid?
The primary aspects examined by a court in determining whether a non-compete agreement is enforceable are the restrictions on future work with respect to the type of work prohibited, the length of time in which the non-compete is in effect, and the geographic scope of the non-compete agreement.
- Type of Work. A company may have a legitimate business reason for seeking to temporarily prohibit a highly-trained employee who has gained insider knowledge from working for a competitor for a limited time period. Often, the company will need to show that it has invested considerable resources – such as years of training – in order to legitimately protect its interest.
A company’s interest in prohibiting an employee would be much less “protectable” if the worker and position in question did not involve significant training and proprietary information. Similarly, the company would likely have no protection at all if the type of work sought to be excluded was general in nature and did not involve any trade secrets.
- Length of Time. Courts are reluctant to provide long restrictions on the time in which a person is prohibited from engaging in a specific type of position. As stated above, Massachusetts presumptively sets a one-year limit on non-competition agreements. The exception to this is severance agreements that include a non-competition clause, because severance agreements are not covered by the law on non-competition agreements. Still, courts will impose a reasonableness requirement on the length of any non-competition clause in a severance agreement. Any non-competition period longer than one to two years will be closely scrutinized.
- Geographic Scope. Courts additionally will look to determine the geographic scope in which a company actually conducts business in determining whether a geographic scope should be limited. As an example, an employee in a specialized sales position may be prohibited from engaging in a similar sales position with a competitor for a limited time period in the same city in which she currently works. However, if her former company only conducted business in one city, a court would likely allow her to immediately work with another employer in another city.
As every non-compete agreement will involve different facts and circumstances, it is important to seek a lawyer experienced in non-competition agreements for advice concerning whether a non-competition agreement or clause will likely be enforceable both before accepting the agreement or clause, and when separating from the company (particularly if a non-competition clause is executed in connection with a severance agreement).
It is increasingly difficult for employers to draft non-competition agreements that withstand legal challenges. If you are being asked to agree to a non-competition agreement or clause as part of joining a company, or being asked to sign a severance agreement containing a non-compete clause, or have left a company and would like to join another employer, but are potentially restricted by a non-compete agreement or clause that you are not sure is valid, please call our firm to schedule a time to review your situation and objectives. We represent individuals who are burdened with overly-restrictive non-competition agreements and help negotiate for more favorable terms.
