According to Google, the top four questions people want answered about non-compete agreements* are: (1) How enforceable is a non-compete? (2) Is a non compete valid if you are fired? (3) Do non-compete agreements hold up? and (4) How long does a non compete last? I hear a lot of the same questions in person, so here are the answers:
1. How enforceable is a non-compete? Generally speaking, non-compete agreements are enforceable. There are only three states in the country that outright ban non-compete agreements – California, Oklahoma, and North Dakota. Additionally, some states now prohibit non-compete agreements for certain professions or employees who earn less than a certain amount per year or per hour. The rest of the states will enforce some form of a non-compete agreement as long as it is reasonable.
Now, if the real question is “How enforceable is my non-compete agreement?”, the answer to that depends on several factors, including the following: (1) the state in which the employee works; (2) the industry in which s/he works; (3) the precise language of the non-compete clause; (4) the responsibilities and duties of the employee at the company; (4) how long the employee has worked for the employer; (5) where the employee is going to work and what will be his/her duties and responsibilities there; (6) what the employee received in exchange for signing the non-compete agreement; (7) whether the employer performed his/her obligations under the agreement; and several other factors.
2. Is a non-compete valid if you are fired? Usually, yes. However, some states have recently passed laws or have attempted to pass laws that would make non-compete agreements void if an employee was fired without cause or terminated as part of the reduction in force. Additionally, some employment contracts may specify when an employee may be fired, in which case, if the employee is fired in violation of their contract, that may make their non-compete clause unenforceable. The norm across the United States, however, remains that the reason for separation from employment does not affect the enforceability of a non-compete clause.
3. Do non-compete agreements hold up? When written correctly, yes. If a non-compete agreement is written to comply with the appropriate state laws, is reasonable, and the employer has given its employees the required consideration in exchange for their promise not to compete, the non-compete agreement is likely to hold up in court, which means the court will order an employee to comply with it.
However, similarly to the question one above, whether your particular non-compete agreement will hold up in court, depends on many factors, including where in the country and in which venue the employer will attempt to enforce it.
4. How long does a non-compete agreement last? As a general rule, non-compete agreements that last two years or less are considered reasonable. However, some states have specific provisions regarding the length of non-compete agreements that set a shorter period of time, and other states allow for much longer periods. Additionally, employee-specific circumstances may make even a 2-year non-compete agreement unreasonable and, therefore, not enforceable in certain cases.
*NOTE: Different rules may apply to non-compete agreements that are not employment-related, i.e. non-compete agreements that relate to the sale of business.
BOTTOM LINE: Different states have different rules about what non-compete agreements they will enforce. Additionally, whether a particular non-compete agreement is enforceable depends on the (1) language of the agreement and (2) the particular circumstances of the employee bound by that agreement.
Leiza Dolghih is a partner at Lewis Brisbois Bisgaard & Smith LLP in Dallas, Texas and a Co-Chair of the firm’s Trade Secrets and Non-Compete Disputes national practice. Her practice includes commercial, intellectual property and employment litigation. You can contact her directly at Leiza.Dolghih@LewisBrisbois.com or (214) 722-7108 or fill out the form below.