Non-compete agreements can be crucial documents for business owners. These agreements can help mitigate the risk of a former employee accepting a job from a competitor or starting their own business that directly competes with yours. But as useful as non-compete agreements can be for employers, they can be legally tricky to enforce.
There have been several instances in which judges have struck down non-compete agreements for being too restrictive. A court’s decision can vary widely depending on each case’s unique circumstances. Several factors can come into play. But there is one factor that is important above all others when it comes to non-compete agreements: Reasonableness.
To be upheld in court, a non-competition agreement’s restrictions must be reasonable. A non-compete cannot impose restrictions that are too burdensome to the signatory. A good contract will balance the employer’s business interests with the employee’s ability to earn a living. A court will consider three factors in particular when assessing whether a non-compete agreement is valid.
- Duration of time
A contract may only impose restrictions on an employee for a reasonable amount of time. A judge will not uphold a contract that bans an employee from doing similar business for the rest of his life.
- Geographic area
Many agreements prevent employees from doing business in the same area as their former employer. But this geographic area must be reasonable. Prohibiting an employee from working within the same city as a former employer may be reasonable; prohibiting them from working on the same continent is not.
- Scope of work
The scope of work to which an employee is limited must also be reasonable. If an employee’s options are too thoroughly restricted, he may not be able to make an adequate living. If a court determines that this is the case, it will likely throw out the agreement.