Whether you are an employee considering changing jobs to work for a competitor, or an employer drafting a new employment agreement, you may have questions about whether a non-competition agreement is enforceable. Here is what you need to know.
What is a non-competition agreement?
A non-competition agreement is a restrictive covenant that prohibits a former employee from going to work for a competitor for a specific period of time – usually six to twelve months after their last day of work with their former employer. A restrictive covenant is similar to a restraining order; it can stop you from doing certain things; in this case, it prevents you from competing with your former employer.
Are non-competition agreements enforceable?
In many cases, the answer to this question is no. This is because such agreements are considered a restraint on trade and unfairly prevent the employee from working in their field. For a non-competition agreement to be enforceable, the employer must clearly demonstrate that such an agreement is necessary to protect their proprietary and business interests.
For example, if a court found that the employer could protect its interests with less restrictive measures such as employee non-disclosure agreements, then the court would deem the non-competition agreement unenforceable.
Another factor that can make non-competition agreements unenforceable is being too broad or vague in the scope of their terms. For these agreements to be enforceable, they must be very specific about what activities an employee is prevented from doing for another employer. Furthermore, non-competition agreements must set out a time limit (usually six to twelve months) as well as a defined territory in which the employee is restricted from competing with that employer. Without all of these elements in place, it is unlikely that a non-competition agreement is going to be enforceable.
What do employees need to know if they have a non-competition agreement?
The first thing that employees should know is that the vast majority of such agreements are not going to be enforceable since they unfairly restrict the employee from getting comparable employment with a competitive employer.
Employees should also know that even if the agreement they have is enforceable, it cannot restrict them from working for any employer – only competitive employers. Furthermore, it can only restrict them from performing the same type of work for a competitive employer. Therefore, if the employee was to find work with a competitive employer but performed a different type of work, then their non-competition agreement could not prevent them from taking the job.
If an employee is unsure about whether their non-competition agreement is enforceable or about whether it applies to the job they are considering, they should seek advice from an employment lawyer.
What do employers need to know before drafting a non-competition agreement?
Employers should know that while non-competition agreements are very useful tools to help them protect their business interests, these agreements must be very carefully and precisely drafted in order to be enforceable.
A good non-competition agreement should be customized to fit each employee’s specific roles within your company. The restricted activities listed in the agreement should be only those that the employee currently does for your company.
The agreement should also set out the length of time that the employee is restricted for. In most cases the period of time is going to be between six and twelve months, but in some cases a longer period may be justifiable. That being said, a time period that is too long – say years – will cause the agreement to be unenforceable as it is an unfair restraint on trade.
Finally, the agreement must define the territory where your former employee is restricted. This will depend on the nature of your business and where you clients and customers are located. In some cases, it may be a certain radius from your building, or in other cases it could be an entire province or country.
The narrower and more precisely defined the terms of the non-competition agreement are, the more likely the agreement is to be enforceable.
Alternatives to non-competition agreements
Employers should also consider whether they can protect their business interests less restrictively than imposing a non-competition agreement. This can often be done through measures such as standard employee confidentiality and non-disclosure agreements.
It may also be able to be accomplished through a non-solicitation agreement. This is where an employee is prevented from soliciting your customers, clients, and employees for a competitive purpose.
These less restrictive measures are more likely to be enforceable than non-competition agreements, and they aim to protect the employer’s business interests.
Contact Kent Employment Law today
If you are an employee looking for advice on whether your non-competition agreement is enforceable or an employer looking for assistance in drafting an enforceable non-competition agreement, contact us today to speak to an employment lawyer.
