Non-Compete Agreements

In most cases, an employer has a legitimate interest in preventing an employee from taking advantage of information, skills or relationships acquired during their employment. For example, most courts will enforce agreements preventing an employee from contacting customers from their employer’s customer list on the behalf of a competitor.

In most cases, an employee will not be paid during the non-compete period. However, it may be possible to negotiate compensation during the restricted period. For example, the employee can be paid a base salary or commissions and bonuses can also be taken into account.

Employers with employees or operations in several states may be able to opt for the law from the most favorable state. However, employers with all their employees and operations in a single state have to abide by the law of that state.

The employer can file a lawsuit against them for an injunction and financial damages. Most courts will grant an injunction while the lawsuit is pending if the employer can point to a facially valid agreement and reasonable restrictions. If the employee loses the suit, they may owe financial damages sought by the employer and may be prevented from competing for a period of time after the lawsuit.

A former employer can also threaten the employee’s new employer with a lawsuit for “tortious interference” with the non-competition agreement between them and the employee. If the con-compete agreement is valid, any third party who induces the former employee to break it may face the same liability as them. This means that, in many cases, the new employer will terminate the employee to avoid accountability.

Both parties should decide whether to require arbitration of disputes in the event of violation of the non-compete agreement. However since arbitration is typically a process too slow to provide injunctive relief, most non-compete agreements allow the parties to seek an injunction in court to enforce the agreement.