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Noncompete agreements: What They Say and What They May Actually Mean

The Massachusetts Biotech and Technology News and New England Local Business News has a very interesting article in Noncompete agreements that don?t mean what they say:

"With the rise in importance of intellectual property and the associated threat to such property as a result of an increasingly mobile workforce, noncompete agreements have become a standard part of employment agreements. Like a prenuptial agreement, noncompetes address what happens at the breakup of a relationship while the relationship is still good.

Typically, noncompete agreements purport to prohibit an employee from going to work for a competitor. While such agreements are generally enforceable like any other contract, they frequently are not enforced to the full extent provided, and, if you are defending against a noncompete agreement, certain steps can be taken to decrease the odds of their full enforcement.

The law in most states is clear: Noncompete agreements will be enforced, but only to the extent reasonably necessary to protect the former employer?s legitimate business interests, typically identified as the company?s trade secrets, confidential information, goodwill and, sometimes, special skills. On its face, a noncompete agreement that says that the departing employee may not go to a competitor may seem quite reasonable and, therefore, enforceable. That is not always so....

Nothing I cannot disagree with anything so far and I will say that you will similar comments from me in other posts here (just follow the "Non-compete agreements" link below). Still, good to remind people of these things.

The article proceeds to analyze two scenarios involving a sales person. These are worth reading.

These two paragraphs should be memorized by every employer using a non-compete agreement:

To maximize the possibility of persuading a court that these dual, seemingly incompatible goals can in fact be harmonized, the employee and new employer should take active steps to disclose (i.e., do not mislead or even be coy with the former employer about the new job), describe (i.e., the employee and new employer should be clear about what the new role is and how it protects the former employer?s legitimate business interests), and document their relationship before the employment begins. It bears mention that, because the enforceability of a noncompete agreement is so fact-intensive, not all three steps are advisable in all circumstances, but they should always at least be considered.

The most important guiding principle to remember is that noncompete agreements are as much about the equities as they are about the language of the restrictions. If a court believes that the former employee and new employer are genuinely trying ? and able ? to protect the former employer?s legitimate business interests, the employee is far more likely to be able to work for a competitor than would otherwise be the case.

Full post as published by Indiana Civil & Business Lawyer on September 09, 2008 (boomark / email).