As recently reported by The New York Times, non-compete agreements are popping-up in a wide array of businesses to protect varied business interests.
As businesses have come to recognize, non-competes are not limited to protection against disclosure of a “top secret” formula, process, or technological invention. A properly drafted non-compete agreement may have much wider application.
The enforceability of non-competes, however, is a function of state law; they are enforceable in some states, but not others. And, in those states in which they are enforceable, the scope of permissible restriction varies.
Here in Florida, a non-compete agreement is enforceable if:
- it is in writing;
- it is signed by the individual against whom you want to enforce it (typically a former employee);
- it is reasonable in time, geographic area, and line of business;
- it is supported by one or more legitimate business interests; and
- the restrictions are reasonably necessary to protect the company’s legitimate business interest(s).
Recognized “legitimate business interests” include the protection of trade secrets, confidential business or professional information, substantial relationships with existing customers or specific prospective customers, goodwill, and extraordinary or specialized training provided to employees. This is not an all-inclusive list.
In terms of length, a non-compete sought to be enforced against a former employee is presumed reasonable if 6 months or less in duration, and presumed unreasonable if more than 2 years in duration. In other situations, a company may be able to enforce a non-compete for a longer period of time, such as a non-compete executed in connection with the sale of a business, or to protect trade secrets.
A reasonably crafted non-solicitation agreement (which is a offspring of a non-compete agreement) also can be used to prevent former employees from soliciting customers and current employees.
So, assuming you’re in a state that permits the use of non-compete agreements, you may want to consider using one if: (i) you’re in the service industry and want to prevent former employees from soliciting and stealing your customers; (ii) your employees have access to trade secrets, confidential information, or business “know how” that you want to keep out of the hands of competitors; (iii) you don’t want your competitors taking advantage of the considerable time and money you spent providing specialized training to your employees; or (iv) there are other legitimate interests you want to protect in order to maintain a competitive advantage.