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Non-Competes Are Hard to Beat – Kelly Rains

Non-Competes Are Hard to Beat – Kelly Rains Jesson, Esq.

  • 29 Jun 2016
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Non-compete agreements are helpful tools for small businesses, especially those getting established or finding success in their location. These agreements enable businesses to hire talented employees without worrying that the employee will leave the business and set up shop in the same town as a competitor, using the skills they learned at their previous employer to that employer’s disadvantage. Non-compete agreements can be signed by employees or independent contractors, and they are oftentimes necessary when selling a business or part of a business.

However, former employees are frequently disadvantaged by overly broad and restrictive non-compete agreements that severely inhibit their right to earn a living. For this reason, North Carolina courts scrutinize non-compete agreements. But, employers should not shy away from using a carefully crafted, narrowly-tailored non-compete agreement to protect their customer base from poaching and proprietary information.

General Requirements

1. The agreement must be in writing, signed by the person agreeing not to do business.

2. The agreement must be made in exchange for valuable consideration. This means that the employee who is agreeing to the terms must get something in exchange. For new employees, this consideration is obviously employment.  For existing employees, valuable consideration includes bonuses or promotions.

3. The agreement’s purpose is to protect a legitimate business interest, such as:

A.  “Good will,” meaning client base or

B.  “Trade secrets” or “proprietary information”- this is confidential information you would not want your competitors to know, such as the ingredients for your “secret sauce” or an assembly-line process which makes your product at a rate two times faster than your competitor.

4. Reasonableness of the restriction, so to time, geography, and the scope of activities covered.

Court look at these factors together, based on the company’s client base, the territory of the employee and company, and the original duties of the employee and information he may retain. It is a fact intensive inquiry. Courts have upheld some three year restrictions while invalidating other three year restrictions based on the circumstances. Restrictions of five years or more are presumed unreasonable unless related to the sale of a business.

If a court finds that a particular provision of a non-compete agreement is unreasonable, the court will strike that portion from the contracts but enforce the rest.

 

Article originally published June 14, 2016 on Jesson || Rains, LLP.

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