By: C. Terrell Thomas, Jr., Attorney at Law
Employers often ask their employees to sign non-competition agreements, commonly referred to as non-compete agreements. Up until late 2014, North Carolina law was quite strict in refusing to enforce such agreements in an employer-employee context. However, on August 5, 2014, the North Carolina Court of Appeals ruled that the parties to a non-compete agreement can include language in a non-compete agreement that allows a judge to re-write overly broad provisions. As such, the North Carolina Court of Appeals stated that an overbroad non-compete agreement will not be ruled invalid; it will simply be re-written by the trial judge in a manner to make it valid. This was a major change in North Carolina law that greatly favored employers, without a doubt.
But hold on… The North Carolina Supreme Court, which is controlling over all state courts in North Carolina, determined that the ruling of the North Carolina Court of Appeals was simply wrong. As such, the August 5, 2014, ruling of the North Carolina Court of Appeals was reversed. In issuing its reversal, the North Carolina Supreme Court stated as follows:
- When an agreement not to compete is found to be unreasonable, a trial court is powerless to unilaterally amend the terms of the contract. In other words, if the parties have agreed upon territorial limits of competition, these limits will be enforced as written or not at all.
- Parties to a non-compete agreement cannot contract to give the trial court the power to re-write an overly broad non-compete agreement. The North Carolina Supreme Court stated that “allowing litigants to assign to the court their drafting duties as parties to a contract would put the court in the role of scrivener, making judges postulate new terms that the court hopes the parties would have agreed to be reasonable at the time the covenant was executed or would find reasonable after the court rewrote the limitation. We see nothing but mischief in allowing such a procedure.”
- However, the North Carolina Supreme Court did reiterate that if the non-compete agreement has more than one territorial restriction, one of which is reasonable and one that is unreasonable, a trial court can disregard the unreasonable territorial restriction so long as there is a distinct and separate, reasonable territorial restriction. In such a situation, the trial court is not re-writing the parties’ non-compete agreement. Instead, the trial court is simply marking out the unreasonable restriction and leaving in the reasonable restriction to allow the non-compete agreement to remain in place (with only the reasonable restriction in place). Let’s be clear, if the agreement states that the employee is restricted from working in North Carolina and South Carolina collectively in one provision of the agreement, a trial court cannot simply mark out one state to make it a valid non-compete agreement. The trial court only has the authority to mark out an independent, overbroad section. By way of example, if the non-compete agreement states in one subsection that the employee is restricted from working in North Carolina and states in another subsection that the employee is restricted from working on South Carolina, then a trial court could strike one of these territorial restrictions as unreasonable since they are independent. In other words, the trial court could strike out one state and leave the other state in place.
If I can help your company in drafting a non-compete agreement or, as an employee, in reviewing your existing non-compete agreement, then please do not hesitate to contact my office. It pays to have counsel who has both successfully drafted non-compete agreements for employers but who has also successfully advised employees in and out of the courtroom as to the enforceability of their non-compete agreements.
Please note that the foregoing article is for informational purposes only and should not be deemed to be legal advice. The law is constantly changing, and it is important that you contact an attorney to guide you.