Non-compete agreements (NCA), or covenants not to compete, are extremely prevalent in today’s market. Employers often require employees to sign a NCA upon accepting employment, and they are very diligent in enforcing them.
Companies do not want employees to put their skills and knowledge to use for a competitor, especially after a company dedicates resources to developing its human capital. This is especially true with the growing emphasis on intellectual property. It could devastate a company if its former employees could freely pass along new ideas or technology to others in the industry.
NCA DRAFTING AND ENFORCEABILITY
While most states have their own laws governing the enforceability of non-compete agreements, there are a few general principles which guide their enforceability. For example, a NCA must not unduly burden the former employee’s right to seek employment or earn a living. Courts have struck down certain NCAs which were deemed too strict or which excessively restrained former employees.
Additionally, companies may not prevent a former employee from competing for an unfair duration of time or within an unreasonable distance from the employer’s location. These rules are designed to protect former employees from having to move their families great distances or being overly penalized for leaving the company.
DANGERS OF MISCLASSIFYING AN EMPLOYEE
As previously stated, NCAs are occasionally overturned when challenged in court. Courts generally base their decisions on the particular language in the NCA and the particular facts of a case.
Recently the Third Circuit held invalid a NCA between a company and its former employee. According to the unpublished opinion, the employer intended to create an independent contractor (IC) relationship, but rather than treating the person as an IC, it treated him as an employee, making sure, although he worked from home, he provided daily reports, attended meetings, logged absences, adhered to the company’s dress code and kept his calendar on the their employer’s system.
The above example illustrates the intricacies of NCAs and the lengths to which employers go to enforce them. For further details or help understanding covenants not to compete, contact a qualified business or employment law attorney immediately.