The U.S. Federal Trade Commission (FTC) is trying to invalidate most non-compete agreements. Whether or not they’re successful (because there will be court challenges), non-competes often face an uphill battle when it comes to enforceability.
As a general rule, a non-competition agreement must be supported by valuable consideration and be reasonable in scope as to (1) time, (2) geographic area, and (3) covered activities.
1. Time. A 3-year non-compete is far more likely to be considered reasonable than a 10-year non-compete.
2. Geographic. A local dentist office that bars competition by an employee within a 10-mile radius of the office may be reasonable. However, banning the employee from doing dental work throughout the country is unlikely to be enforceable.
3. Covered Activities. An agreement that covers the duties actually being performed by a worker may be reasonable. However, barring the worker from switching careers to an unrelated job certainly wouldn’t be enforceable.
Now it’s important to understand that a noncompetition agreement is just one arrow in the arsenal you should be using to protect your business.
Two other tools to consider are (a) nondisclosure agreements to protect trade secrets and (b) nonsolicitation agreements to prevent looting your customers and workers.
And if you need help crafting the right protections for your business, it’s probably time to schedule a phone consultation with Business Lawyer Mike Young.
