Do You Have a Valid Non-Compete Clause?

The legality of non-compete agreements may be in its last months here in Massachusetts, but for now such agreements are still valid. However, there are two major requirements in order for a non-compete to be valid and enforceable: one, the agreement must be bargained and compensated for; two, the scope of the restrictions must be reasonable. When I say that the agreement must be bargained and compensated for, I’m talking about the agreement having consideration, that thing you give up to get something in return. All contracts, including non-compete agreements, must have consideration in order to be valid. However, many employers run into the issue of consideration for their non-compete agreements. This usually happens because they decide at some point to put some or all of their key employees under non-competes, so they have an agreement drafted and then ask their employees to sign them. But the employer hasn’t given anything in order to get the protection of a non-compete, nor has the employee gotten anything for giving up his or her rights. Courts have consistently held that continued employment is not proper consideration. Ideally, non-competes are signed when the employee is hired — the offer of employment can act as consideration. However, if an employer wants to put current employees under a non-compete, it generally must be accompanied by promotions and/or additional job responsibilities necessitating the non-compete (usually along with commensurate raises, bonus, and/or benefits). Otherwise, it is very difficult to find consideration to support non-competes signed by current employees. A non-compete must also be reasonable in scope; there are three basic terms of scope: industry/position, geography, and time. In most states, each term must be as narrow as possible, while still granting the employer the protection it seeks, so as to not unfairly infringe upon the employee’s right to seek work. Industry/position terms are restrictions on the positions, job responsibilities, and industries the employee may work in under the non-compete. The terms have to be limited to protecting the employer’s legitimate interests, so a non-compete generally can’t bar a worker from obtaining any employment under the non-compete. Reasonable terms are generally limited to the employee’s current position/responsibilities and the employer’s specific industry. However, if an employee earns his or her living with a certain set of specialized skills, the terms must be limited even further. For example, a senior software developer whose primary marketable skills are limited to software development generally cannot be barred from obtaining any software development or related position — if he or she was, he or she would not be able to obtain employment during the non-compete. The terms usually must be limited to a certain set of job responsibilities, and the industry limited to the subset in which the employer participates and which contains its direct competitors. The geography term must also be limited to the employer’s legitimate interests — if it is not a national or international company, it may be unreasonable to include a geographic restriction outside of the company’s state. A broad geographic term may also be unreasonable if, in concert with other terms, it would force an employee to move in order to find employment. Finally, non-competes must also be reasonable in duration. Non-competes cannot be indefinite — at some point, the employee’s right to freely seek work, even with an employer’s competitor, begins to outweigh the employer’s legitimate interest in restricting the flow of their employees to competitors, as the employer builds and moves on from the work done by the employee. As a general rule of thumb, non-competes lasting a year or less are considered reasonable; however, the lower the level of the employee, the shorter the reasonable term becomes, as lower-level employees have less knowledge of and are less critical to the employer’s competitive advantages.

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