Legality of Noncompete Clauses

A noncompete clause can limit your ability to work in a field.

Noncompete clauses limit an ex-employee's ability to work in a professional field or in a certain geographic area after leaving an employer. How enforceable they are depends on the state in which they are drafted, and on how great a burden they place on the employee's freedom to work. The following principles are commonly used by courts to determine the validity of these clauses.

The Sale of a Business

When a business is sold, courts will uphold the restriction.

The one situation in which a noncomplete clause is generally upheld is for the sale of a business. An owner who sells his interest in a business generally signs a clause that prohibits him from competing with the new business owner.

Reasonableness

Businesses can make reasonable moves to protect their interests.

Businesses might have good reasons for protecting their interests. But for the court to uphold the limitation in a contract, it must be reasonable. The limitation must be narrowly tailored; it must restrict the employee no more than necessary. A clause that prohibits the employee from soliciting business from the employer's clients will probably be upheld. If the limitation is too broad, the court will probably strike it down.

Duration

Restrictions that last more than two years are considered too long.

Noncompete clauses that permanently restrict an employee from working in a field or area are not favored by courts. Many such clauses bar the employee from working in the field or area for one year after leaving the employment of the corporation. A contract that restricts the rights of the employee for more than two years is generally considered too long in duration.

Geographic Scope

Clauses that cover the entire nation are probably too broad.

The more limited the geographic area covered by the clause, the more likely the court is to uphold it. A business might have a good reason for wanting to protect its local market. So a contract that limits the employee from taking another position within a 10-mile radius will probably be accepted. But one that restricts employment in other states will probably be seen as too restrictive.

Modification

In some states the courts can rewrite the clause.

In some states the courts can modify a clause that is too restrictive. A clause that covers a state for two years could be modified to cover a city for one year. But some states do not allow modification, so there such a clause would be either upheld or struck down.

Attorneys

Attorneys are generally not limited by noncompete clauses.

If you are an attorney, a noncompete clause will not be valid against you unless you sell a law firm. The courts have said that this freedom for attorneys is necessary because of the fundamental right of citizens to legal representation.

References

• Keeley, Kuenn & Reid "Non-compete agreements: are they enforceable?"