Businesses spend a lot of time, energy and money building relationships in order to get a leg up on their competition, whether it be with customers, employees or third party partners. In order to prevent losing valuable employees to competitors, many employers will require their employees to sign agreements with non-compete and non-solicitation terms. The more competitive a field, the more likely employers will ask prospective employees to sign agreements with these terms. It’s essential that these terms are drafted carefully in order to be enforceable and to accomplish its intended purpose.
In general, non-compete terms restrict employees from competing with their former employers, while non-solicit terms prevent the employee from soliciting the customers, suppliers and third party partners of the company. Each state has certain nuances, so it is important to be knowledgeable of the state law that applies. Some courts, for example, will not enforce non-compete terms if the only purpose of the non-compete is to eliminate ordinary competition. The restrictions set forth in the agreements depend on the circumstances of each situation, but generally must contain reasonable durational, geographic and scope limitations in light of the employer’s “legitimate business interest.” Legitimate business interests recognized by courts most often include trade secrets, confidential information, customer/client lists, or near-permanent customer relationships.
Non-compete and non-solicitation terms that are good for one business may not work for another. It is important to tailor each agreement to the interests of the employer and ensure they are no broader than necessary to protect the employer’s legitimate business interest. Employers can often successfully enforce non-compete and non-solicitation terms, so long as the agreement is reasonable, defensible, and limited in its reach.
Melody Ashby is a Senior Attorney at Meyer Law, one of the fastest growing law firms in the United States. Melody helps companies with corporate and securities matters, trademarks, contracts, employment matters and capital raises. Melody is a mentor at tech incubators and accelerators across the United States. Learn more about Meyer Law here on our website + follow us on Instagram @loveyourlawyer