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As noted in our previous
post, courts will not enforce a restrictive covenant against a
departing employee unless the former employer can show the
restraints imposed are reasonable between the parties and in
reference to the public interest. So consider,
1. Is there a legitimate business interest being
protected?
2. Is the restraint imposed reasonable, and not beyond what
is necessary to protect the employer's legitimate business
interests, particularly in terms of its duration, geographic scope
and the activities restrained?
3. Is the language clear?
There is no bright line rule for establishing the duration of a
non-compete, but usually employers seek a year. If the non-compete
is tied to a commercial transaction, such as where the employee is
selling an interest in the business yet continuing to work, a
longer period will be enforced by the courts. We encourage
you to consider: do you really need a year? The shorter the time,
the easier to enforce.
What about the territory covered by the non-compete? This is
easy when thinking about a local business, serving a defined area.
But what about technology or online businesses, or manufacturers
who distribute over a wide area? In some limited cases, a worldwide
non-compete may be sought, in which case you must draft a
definition of "competitive business" that mirrors your
business as closely as possible.
We have also seen companies include specific competitors in the
definition of "competitive business". If one or two key
competitors are a concern, this can be a good strategy. However,
you must have a very clear idea of what the business of your
competitors actually is before naming them. If their business is
different than you suspected, including them can imperil the
enforceability of your restrictive covenant, as the employee will
be able to argue that the restriction is unnecessary and
unreasonable.
In short: Less is more. Keep the duration and territory as
short as you can, while still protecting your legitimate
interests.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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