At their core, non-competition agreements preserve a business's good will or confidential information (trade secrets, customer lists etc...). A typical scenario is where an employee is leaving his or her employer and the employer wants to prevent the former employee from working with a competitor. However, these types of contracts can also be found in other agreements as well. Supply agreements where a vendor wants to keep its client from purchasing directly from one if its suppliers. The old "cut out the middleman" scenario. Asset purchase agreements are another area where these types of agreements should be used. Why purchase a business if the selling entity can set up shop right across the street and immediately become your competition?The Legal Requirements of an Effective Non-Competition Agreement
- Consideration - Non-competition agreements must be supported by consideration. The employer must give the employee something of value in exchange for what the employee is giving up. The prospect of the employment itself will satisfy this condition if the non-competition agreement was signed prior to the start date. However, if you are already employed, the promise of keeping your job will not suffice and additional consideration is required.
- Protect Legitimate Business Interest - In order for the employer to be able to protect information, it must show that it has taken reasonable steps to protect this information itself and that the information gives it a competitive advantage.
- Reasonable in Scope and Time - The court is always looking to balance the need for the employer to retain its competitive advantage versus the ability of an employee to earn a living. Therefore, restrictive covenants must be reasonable in scope and length. Usually 1-2 years is an acceptable duration and the smallest geographic area to preserve the employer's interest will be enforced. For example, a business that sold its restaurant in Center City Philadelphia will not need a non-compete for all of Pennsylvania. Perhaps a 5 block radius will suffice or a larger radius depending on the good will associated with the name?
If you have questions regarding the enforcement of your non-compete or you are an employer and want to put into place an effective agreement for both new and current employees (remember, the requirements are different in this case) please contact our firm and we will be happy to assist you. Recent success stories include:
- Represented employee terminated from major Philadelphia health system. Successfully negotiated substantial increase in severance agreement that resulted in total increased compensation to client of over $200,000 based upon issues raised in non-compete. We were also able to reduce future income offset language if he found new employment within the reduced restricted period.
- Represented national insurance company in litigation to enforce restrictive covenant against former employee. By responding quickly to our client's problem within 2 days we obtained an emergency injunction that enforced the non-compete clause in the employment agreement we drafted for our client. The former employee was ordered to cease and desist from contacting our client's customers.
- Represented Cape May, NJ restaurant in connection with successfully enforcing non-competition agreement against former employee opening competing restaurant.