NASE Blogs

From the Trneches ... Can I Enforce a Non-Compete Agreement

Monday, June 21, 2010

Question         I hired an employee several years ago and as a condition of employment I had her sign a non-compete agreement stating she would not work for a competing business in my industry. She quit earlier this year and went to work for one of my competitors. Can I stop her from working for my competition based on the non-compete agreement that she signed?

Answer            Not knowing All of the details it is hard to speculate ... however, there is likely little you can do to uphold the non-compete agreement unless she receives some sort of financial benefit from not working in the same industry. I say “likely” because it comes down to a legal issue that only an attorney can determine after reviewing the non-compete agreement and considering all of the circumstances.

The basic issue is that you can not prevent someone from earning a living or practicing their profession without compensating them. So, an agreement that someone can not go to work for another similar company if they terminate employment with you generally will not stand up in the courts.

Some exceptions to this are if the person has received some financial benefit. Example, if you hired this person without experience and then you trained them or paid for them to attend classes to enhance their professional knowledge in their position or get a particular license or professional classification, it would be reasonable for a non-compete to hold up ... for a reasonable amount of time which could be 6 months or more depending on the amount and intensity of their training. If you terminated the employee and provided them with severance pay, you could likely prevent them from working in the industry for the length of time you paid severance for.

Another issue that is commonly in non-compete agreements and is generally upheld in the courts pertains to proprietary information.

Example, while you might not be able to stop an employee from going to work for a competitor, you can establish legal ramifications if they take your client list or make attempts to pirate your clients. You can also hold them liable for taking trade secrets of your business or the systems you use in your business and are not general public knowledge.

Establishing an enforceable non-compete agreement is not a simple task and every state has laws that address the rights of employees to work in their trade or profession. If you want to develop a non-compete agreement start by finding out what your state department of labor or state employment regulations allow you to do. If you do use a non-compete, it is well worth a couple hundred dollars to have a qualified attorney make sure you don’t have more than a piece of paper that will go up in smoke if challenged.


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