Today, we get to talk about the most contested and controversial type of employment contracts: Non-Compete Agreements! Let’s dive right in!
Non-Compete Agreements (also called restrictive covenants, CNC, and non-solicitations) are contracts where an employee agrees not to work for a competitor (or set up a new business that competes) with the employer. Typically, this is limited in scope by defining a certain geographic region, the time that the restriction lasts (and ends), and what constitutes a “competing business.” It’s worth it to go over these three parameters, too, because they can make or break the entire agreement!
Most non-competes have to be limited by a geographic scope or pool of people. Geographically, a 10-mile radius from the place where the employee worked is usually enforceable in Georgia (and most states in the Southeast region). It’s not a hard line rule, though; the scope of the non-compete depends on a lot of other factors, such as how much the employee was getting paid to be bound by the non-compete, and the company’s interest in having the courts enforce it or not. Some non-competes are restricted, rather than geographically, by a certain industry. This gets real squishy, real fast, since it’s hard to determine how large an industry is, and weigh the need for the employer to restrict the employee against the employee’s own interest in making a living.
Most states allow for 1 to 2 years of non-compete agreements, if they allow non-competes at all. This means that for the 1-2 years following the employee’s termination (quitting or getting fired), the employee is not allowed to work for a competitor.
The employer will want to argue this broadly, but it’s hard to argue that a job at Starbucks is really competing with a company that sells medical equipment! Still, a well-written non-compete contract will specify the businesses or types of companies that the employee could not work at without violating the contract.
While there’s very little that “voids” a non-compete, many employers find that their non-compete agreements are written badly (i.e., not written by an attorney), and are therefore not enforceable against the employee! This usually happens when the scope of the agreement is too broad. There are also wildly different non-compete laws in each state! Georgia, for example, is usually considered “employer-friendly,” while California is “employee-friendly.”
Sometimes, companies want to really invest in an employee–give them special training, or even pay a lot of money to train that employee, sending them to a trade school, and so on. When they do that, they will probably want to protect that investment with a non-compete employment contract. This makes sense; it would be a bit of a windfall for the employee if they could get cheap or even free training in a highly specialized industry, only for them to turn around and use that special skill set to steal business from the company that paid for the training.
That said, more often than not, non-compete agreements are handed out like candy and given to all employees, even ones who did not receive any special training. There are, of course, incentives for companies to restrict their employees from being allowed to work for competitors, the labor market being what it is.
On the flip side of it, the employee has the need to be able to make a living, and non-competes can get in the way of that. If someone has started a career in a certain industry, signs a non-compete with a new company, and then that new employment relationship turns sour, that employee will (likely) have to abide by the non-compete restriction for a year or more, and what are they to do during that time?
There are a lot of ways we could answer this. I’d say that most non-competes don’t get enforced with lawsuits (although that certainly happens); instead, normally the employer and ex-employee will work out some sort of settlement agreement. It’s usually an unequal resources war or battle, though–the company usually has more money to pay lawyers to prevent the employee from working at competitors and enforce their agreement than the employee has to defend such a lawsuit.
I’d say that, if you’re reviewing a non-compete agreement and are on the fence about it, call a lawyer and have that attorney explain what it means before you sign anything!
If you’re a business owner and would like a solid non-compete agreement written for your key personnel, we’d also recommend that you have a lawyer help you to draft such an agreement, so that you’ll know whether you can enforce it.
It depends on what state the company is headquartered in, what state’s laws apply to the contract itself, the state the employee works in and, if different, the state the employee lives in (I know, I know, it gets confusing quickly), but states that do allow non-competes typically allow them to be valid for 1 to 2 years “post termination,” meaning after the employee quits or is fired.
Non-competes are different, though, given different circumstances. If an employee worked at a firm for 5 years and got highly specialized training, the courts would probably enforce the non-compete against them. But, if the employee was only working there for one day, the court may not enforce it, since it was such a short time, and the employer may not have a legitimate interest in enforcing it.
Oftentimes, yes, you can get out of a non-compete, but you’ll probably need a lawyer to help you negotiate it. Like we’ve said, above, there are a lot of factors at play, and a good attorney will flag those issues and leverage the best available for your side.
Yes, absolutely! Businesses with non-competes written by attorneys have much more success enforcing them! One of my favorite things to do is to review an ex-employee’s (terribly written) contract and explain to their hold employer why they won’t be able to restrict my client at all; their contract is trash!
We’ve been challenging bad employment agreements and writing great ones for over 10 years, several hundred so far, and would be honored to get to help you out with yours! Give us a call!
