When is a non-compete agreement enforceable?
Contracts between employers and employees that try to limit what work a former employee can perform, where he or she can perform it, and for how long are becoming more common. In Virginia and North Carolina, this type of contract, usually called a “non-compete,” is enforceable if it meets certain strict parameters.
Non-competes are often used in conjunction with other types of contracts that address contact by the former employee with the employer’s customers or clients or use by the former employee of the employer’s confidential, proprietary, or trade secret information. These other types of contracts, usually called “non-solicitation” and “non-disclosure” agreements, respectively, are subject to different though similar rules on enforcement than are non-competes.
In general, for a non-compete to be enforceable in Virginia or North Carolina, it must be a valid contract and must restrict the former employee only to the extent necessary to protect the legitimate interests of the employer. What does that mean, and how does a court decide?
The restriction must be reasonable in terms of geography, activity, and time. Those three parameters are considered in conjunction, not separately. So while a non-compete that prohibits a former employee from competing in the same business from the next-door storefront for five years might be enforceable, a non-compete that includes a radius of one hundred miles for one year might well not be.
But the entire inquiry by a court starts from an analysis of what the former employee actually did for the employer. An employer does not have a legitimate interest in preventing a former employee from working anywhere or for any period of time in an activity that is not directly related to the work the employee performed for the employer. So a non-compete that, in the abstract, appears enforceable in light of the geographic, activity, and temporal limitations, may not be because it is not tailored to what the employee actually did while employed. For this reason, standard non-competes for entire classes of employees risk being unenforceable because they do not fit any particular employee closely enough. Any non-compete for a prospective employee must be drafted with the particular employee and position in mind, and the potential enforcement of any non-compete must be analyzed based on what the former employee actually did while employed.