Is Your Non-Compete Agreement Enforceable?
Employers often ask their employees to sign non-compete agreements when they are hired or after they are already working for the company in an attempt to prevent the employee from leaving to work for a competitor. However, these are not as cut-and-dried as you may think. Learn more about whether your non-compete agreement is enforceable from an experienced business law attorney in Raleigh.
What Is a Non-Compete Agreement?
A non-compete agreement, sometimes called a “covenant not to compete,” limits an employee from going to work for a competitor. These are used in all types of industries, spanning from retail to tech, as a way for an employer to prevent loss of talent, preserve client accounts, and protect corporate or business information. Not all states allow non-compete agreements, and while North Carolina does allow them to be enforced, they are highly scrutinized when challenged in court and must meet several standards.
What is a Required for a Non-Compete Agreement?
In order for a non-compete agreement to be enforced, it must meet five standards.
- It must be in writing
- It must be reasonable as to time and territory. There isn’t a set radius or timeframe specified in the law and is subjective to the court
- The non-compete clause must be designed to protect legitimate business interests rather than being a punishment for an employee leaving the business
- The agreement must be made during the employment contract
- The employee must receive something of value, called “consideration.” When an agreement is signed at the beginning of employment or in exchange for a promotion, this can be adequate consideration. Otherwise, if an employer asks the employee to sign a non-compete agreement while employed, it’s not enforceable without some type of benefit to the employee
In order for a non-compete agreement to be enforceable, it must adhere to these five guidelines.
How the Court Views Non-Compete Agreements in North Carolina
The guidelines for an enforceable non-compete agreement are vague in certain aspects, and this is intentional. At the core of the court’s decision is the desire to protect both the employee’s best interests and the employer’s legitimate business interests.
For example, a non-compete clause that is reasonable to time and territory is highly subjective. However, the court often looks at the geographic reach of the business, specifically the area in which the employee worked, and where their clients were located. If the majority of their clients were within a 10-mile radius, and the non-compete clause said the employee was unable to work for a competitor within 100 miles of the business, a judge would likely not consider that reasonable, but they likely would consider an agreement stipulating a 10-mile radius to be reasonable.
Also, the role an employee has affects whether the non-compete agreement is enforceable. If the employee is taking on a completely different role with a competitor or will not be in a role where they could “poach” clients or share business secrets, the court would not uphold a non-compete agreement.
On the other hand, when an employee has advanced knowledge of the employer’s business, including client information, pricing details, and intellectual property, the court will allow a more strict non-compete clause in order to protect the legitimate business interests of the employer.
Our Raleigh Law Firm Can Help with Your Non-Compete Agreement
If we can help your company in drafting your non-compete agreements or, as an employee, in reviewing your existing non-compete agreement, contact our Raleigh law firm by calling (919) 615-2473 or by filling out the contact form below. We can help you navigate the complexities of a non-compete agreement, whether you would like one that can be enforced to protect your business, or you have concerns that an existing agreement is not lawful.
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