Revisiting Non-Competes: Make Sure You are in the Clear

We get it. You invest time, energy, and money into an employee. When it comes time for them to leave, you want to make sure that they do not use all that they learned against you. That is where non-compete agreements—also sometimes referred to as covenants not to compete, restrictive covenants, or noncompetition agreements—come in. These agreements are frequently used in the employer-employee context, so it is imperative that you and your team know the different ways that courts can invalidate them. Throughout the years, our experienced business litigation attorneys in California have observed too many instances of invalidated non-compete agreements that could have easily been saved if they were drafted the right way in the beginning. Read on to learn more.

Generally Speaking, a non-compete agreement will be upheld by the courts if it is “reasonable” in regards to its duration, geographical area, and the industries covered.

There is no simple rule as to how many years an employer can prevent an employee from working in a particular industry after departure. What is reasonable? The norm in most cases has been one year. However, whether one year is even reasonable might depend on the industry in which the employee works and the employer operates. In an industry that is technology or Internet focused, for example, one year might be excessive. In others, it might be fine.

What is deemed a reasonable geographic restriction might also depend upon the type of industry of the employee and employer. If the industry is unique and niche, then restricting the former employee from working anywhere in the world within the industry for a period of time might actually be reasonable. Otherwise, regional and local geographic restrictions are more reasonable for most industries.

Regardless of how reasonable the duration or the geographic restriction may be, a court will sometimes invalidate a non-compete agreement simply because there is nothing to protect. The courts have frequently explained that the purpose of non-compete agreements is to prevent the employee from gaining an unfair advantage over the employer after departure. The key word being “unfair.” Non-compete agreements are not meant to prevent former employees from using general knowledge or skills that they could have acquired anywhere. Non-compete agreements are also not meant to prevent competition—that goes against public policy. You have to find the legitimate business interest that you are protecting.

The last thing you want is for a court to invalidate the non-compete agreement you use with your employees. In addition to ensuring that a non-compete agreement protects legitimate business interests, is reasonable in duration, and is reasonable in geographic scope, there are various other things that should be addressed in the agreement. To make sure you are in the clear and that your agreement is good to go, please take a moment to reach out to the experienced attorneys at SAC Attorneys LLP today. We serve clients throughout Silicon Valley.