Covenants Not to Compete

The economic downturn of the last few years has had a significant impact on the way that employers deal with their employees. As the job market has become more competitive, employers have become increasingly concerned about the possibility that valued employees will leave to work for competitors, especially if the employees had access to confidential corporate information or worked closely with clients. As a result, employers are taking measures to limit their employees' abilities to move to competitors.

Most employees are free to use their skills, talents and experience to advance along their chosen career paths. However, more and more employers are requiring their employees, especially their highly skilled employees, to sign covenants not to compete. A covenant not to compete is essentially a contract between an employer and the employee that prevents the employee from working for a competitor. Because of the potential for employers to place strict limitations on an employee's freedom to move from job to job, most states place limits on such contracts.

Generally, courts will carefully consider all of the facts and circumstances involved in each covenant not to compete to determine whether the employee has knowingly agreed to relinquish his or her rights to change jobs. Most courts also try to determine whether the employer truly needs the covenant not to compete in order to protect important business interests. Courts may also consider whether the terms of the covenant are fair.

Most courts will not enforce covenants not to compete unless the employer proves that the covenant is needed to protect against the loss of customers, prevent the loss of an employee who provides unique services, or to protect against the loss of trade secrets. Usually, courts will not enforce covenants that merely prevent an employee from using the skills and training to become an effective competitor. Courts may also determine the fairness of a covenant not to compete by considering the duration of the covenant, the activities restricted by the covenant, and the geographical area covered by the covenant. If any of these factors are unreasonable, a court may choose not to enforce the covenant. Essentially, covenants not to compete will not be enforced if they place unreasonable restrictions on an employee.

It is important to remember that the reasonableness of a covenant not to compete can vary greatly depending on your profession. What may be a reasonable non-compete provision for a doctor may not be a reasonable provision for an electronics salesperson. Additionally, other factors may influence whether a covenant not to compete is enforceable. For example, employers may have a more difficult time enforcing covenants against employees who were terminated or laid off than against those employees who choose to leave on their own. Of course, the enforcement of covenants not to compete varies in each state, so it is important to see a lawyer before signing a covenant not to compete. Likewise, it is important to consult with a lawyer if you choose to leave a job where you have signed a covenant not to compete. One thing is certain, with the economy in its current state, more employers will consider utilizing covenants not to compete in order to keep employees from leaving to work for the competition.