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Non-Compete Agreements - Fact or Fiction?
By T. Christopher Bailey on September 4, 2013 at 9:14 AM

NonCompeteAgreements“Non-compete agreements aren’t really enforceable, are they?” This is a question I’ve been asked many times, usually by someone who already signed an agreement they didn’t fully understand. Non-compete agreements, also commonly referred to as restrictive covenants, are a confusing area of the law. Let’s clear up a few of the common misconceptions.

All non-compete agreements are created equal. Fiction. Although commonly lumped into the single term “non-compete agreement,” restrictive covenants cover a variety of topics, such as non-disclosure agreements, customer non-solicitation agreements and employee non-solicitation agreements. It is common for a single agreement to include many, if not all, of these restrictions.

Where an employer is located and where the employee works affects enforcement of non-compete agreementsFact. Non-compete agreements are interpreted in accordance with state law, and the law varies from state-to-state. Some states, California for example, consider non-compete agreements contrary to its public policy and refuse to enforce them except in limited circumstances. Other states, Missouri and Illinois included, allow employers much greater protections. Many agreements include a “choice of law provision,” to provide some clarity.

An employee’s job duties don’t affect enforcement of non-compete agreementsFiction. Courts are much more willing to protect an employer’s existing customers than to simply preclude someone from accepting employment. The more contact an employee has with those customers, the more likely a court will enforce a customer non-solicitation agreement. However, courts possess the authority to limit enforcement of a customer non-solicitation agreement to those customers with whom the employee had actual contact (as opposed to all of the employer’s customers), and a court may allow an employee to work for a competitor, so long as the employee avoid contacting customers with whom he dealt while employed by his last employer.

Non-compete agreements must have a specific geographic restriction and a specific time restriction to be enforceableFact (sort of). Most states allow a customer restriction to substitute for a geographic restriction, but a non-compete agreement should have one or the other. Non-disclosure restrictions can be perpetual (so long as the information remains confidential), but other restrictions must be contain a reasonable time restriction.

If an employer fails to enforce a non-compete agreement against one employee, it cannot later enforce a non-compete agreement against another employeeFiction (sort of). An employer’s failure to previously enforce a non-compete agreement does not preclude subsequent enforcement against a different (or the same) employee. However, the court may consider the employer’s prior inaction in deciding whether to enforce the non-compete agreement.

Because of uncertainty surrounding enforcement, non-compete agreements don’t provide employers any real protectionsFiction. Non-compete agreements provide employers protection both through enforcement and through their prophylactic effects. In many cases, non-compete agreements are enforceable. Employees often err on the side of caution to avoid incurring the cost of defending a lawsuit. Prospective employers often avoid employees subject to non-compete agreements in order to avoid potential litigation.

Without question, the subject of non-compete agreements is a fluid and often difficult area of the law to navigate. That said, these agreements provide valuable protections for employers and create uncertain risks for employees and prospective employers. The correct answers often lie in the specific language of the agreement and in the specific facts of a particular case. In both Missouri and Illinois, however, non-compete agreements are generally considered enforceable—in the right circumstances.

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