Noncompete News Alert: What Is A "Protectable Interest"? And Why It Matters

Covenants not to compete are different animals in the contract world. In the great majority of contract situations, enforceability of the terms is not much of a consideration. If you agree to buy a thousand widgets for ten dollars each, if you do not pay the money, you do not get the widgets. Or, if the seller shipped you the widgets, you can be forced to pay for them or return them.

Covenants not to compete are not so clear as to enforceability, however. This can be difficult for business owners and executives to understand sometimes. “She signed it! She has to live with it!” In the immortal words of former ESPN broadcaster Lee Corso, “Not so fast, my friend!” The reality is that courts closely scrutinize whether or not an agreement not to compete may be enforced.

For example, among the considerations courts traditionally examine regarding enforceability, two of the key factors are whether the time and geographic restrictions are reasonable. Tennessee passed a statute, effective July 1, 2026, that, among other things, addresses the time restrictions and provides that a restraint of two years or less against a former employee or independent contractor generally is presumed reasonable in time.

In the employment setting, another key factor, in Tennessee and many other states, is whether the employer has a “protectable interest.” If so, and provided other requirements are met, generally the agreement is enforceable. If the employer does not have a “protectable interest,” the agreement is not enforceable, even if other factors such as reasonable time and geographic restrictions are met. So, what is a protectable interest?

We can start by noting some things the courts have established are certainly not protectable interests. One is what the courts call “ordinary competition.” Employers do not have an interest in simply preventing competition against them by former employees. Along those lines, an employer does not have a protectable interest in their employees’ general knowledge and skill in the industry or in their chosen profession. An employer cannot prevent an electrical engineer from working as an electrical engineer, even for a competitor, based solely on the engineer’s use of the knowledge, skills, and experience gained from their education and career.

For the employer to have a protectable interest, a factor must be present which establishes that allowing this particular employee to work for a competitor would result in unfair competition against the employer. A common example involves the sales setting. The employer pays a salesperson to develop strong relationships with customers and customer contacts, to learn what they like and do not like, what motivates them, and what their business needs are. The salesperson engages in such relationship building and becomes “the face of the company” to the customers. For that person to leave and seek to simply take the customers elsewhere may be a form of unfair competition. In such a situation, courts generally find that the employer has a protectable interest in the customer relationships that the company paid the salesperson to develop on its behalf and for its benefit.

Another common form of a protectable interest involves particularized knowledge. This can be in the nature of trade secret processes or specialized training. With regard to training, courses that anyone can take, even if very technical and paid for by the employer, are not sufficient. The training must provide the employee with knowledge that is unique, or at least almost unique, to the employer.

Practical Tips

Many states and courts are growing increasingly hostile to covenants not to compete, and employers should be aware of the laws applicable to the states in which they seek to enforce noncompete agreements. It is worth the effort to carefully think through what you are trying to protect for your organization and how best to protect it. This will result in better drafting of agreements that contain a covenant not to compete. In addition, consider including provisions that prohibit solicitation of customers and employees, and that require the employee to maintain the confidentiality of trade secrets and confidential information both during and after employment. Courts are typically more amenable to enforcing those sorts of restrictions as compared to those contained in covenants not to compete.

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.