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Businesses: do due diligence on issue of non-compete agreements

Non-compete agreements, also known as covenants not to compete, can be an important way for businesses to protect their interests in both proprietary information and highly trained personnel. Businesses need to be careful, though, what terms they include in their agreements so that they are effective in court when challenged by a former employee looking to work for a competitor.

In addition, companies also need to be careful when hiring new employees who may be bound by a non-compete agreement. If a new employer finds out that an employee is bound by such an agreement, the employer may have a duty to fire the employee, at least according to a recent decision by the 11th Circuit Court of Appeals.

The decision in the case involved a company which hired two employees who were bound by non-compete agreements with their previous employer. At the time they were hired, the new employer was not aware of the non-compete agreements. When the new employer was sued for tortious interference with a business relationship by the previous employer, it claimed that because it was not a party to and was unaware of the agreement, it was not liable. On appeal, however, it was held that the former employer could indeed sue the new employer for tortious interference.

Each state has slightly different laws when it comes to the validity and enforceability of non-compete agreements, and it is important for employers to work with experienced counsel to manage any potential liabilities in this area. Understanding one’s obligations going forward can prevent the costs and frustrations that arise when litigation is involved. 

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