Intensifying Competition - Non-compete laws throughout the country
Most people understand the basic idea of a non-compete agreement, but just to make sure that we are all on the same page: parties to a contract agree that they will not engage in competitive business. Usually (but certainly not always) this is in the context of an employee; in order to be hired, many employees have to agree that they will not participate in a competitive business for some specified time and within certain geographical limit.
Frequently, however, non-competes are viewed more as deterrent agreements than the subjects of a lawsuit. The entire idea of a non-compete is to prevent somebody from competing in the first place, not to create a lawsuit. Most who sign them, and who have their employees sign them, hope that they never have to worry about them again.
This naturally leaves a big question mark though: what actually happens when somebody does violate a non-compete? How is it enforced? What do employers need to do, and do employees have any relevant rights?
From the employer perspective, the first step in enforcing an agreement is to write a letter (or, better, have their attorney write a letter) to the former employee’s new employer. This letter takes the form and tone of a ‘cease and desist’ and will inform the new employer of the non-compete agreement, and the obligation of the former employee to comply. The letter will usually inform the former employee and the new employer of the intent to file a lawsuit if the breaching action does not cease.
Once they have received the letter, new employer has a few options. They could tell old employer that they intend to stop the breaching action as soon as possible, and that there will not be any more trouble. They could also take the exact opposite position, and tell old employer that they should prepare for a fight (usually either because they think that they are not violating the non-compete, or because the non-compete should not be enforceable in the first place). There is a third option of new employer responding to old employer stating requesting that they take the time to work out a reasonable ‘middle-ground’ style solution. Middle ground style solutions may take the form of employee being able to continue to work with new employer in the same location, but not being able to participate in certain activities, just as an example.
From there, the situation can vary greatly. If the two sides do get into a fight about the non-compete, the grainy details of the agreement can really make a difference. The two sides could end up arguing (see also: spending exorbitant amounts of money on attorneys) for months, or even years, about what constitutes competing, how the geographical size of the restrictions should be measured, whether the non-compete is reasonable and/or necessary, the list goes on… With how expensive attorney fees can be, it begs the question of whether it is worth the effort to enforce a non-compete in the first place.
The answer, predictably, is it depends. This is where there are some practical considerations for employers as they craft non-compete agreements for their employees to sign. The best way for employers to not have to deal with expensive lawsuits surrounding non-competes down the road is to have a good non-compete in the first place. Here are a few general tips:
1- Be reasonable. This seems like a given, but it is important to remember that broad, vague, and overly restrictive non-competes are the easiest to get thrown out.
2- Be clear about what will constitute a violation of the non-compete. E.g. rather than saying “employee shall not engage in a competitive business,” say instead “employee shall not obtain work as a pediatrician…”
3- If you do choose to have a geographical limit, be clear about where it starts and ends. Some people choose to have a radius around a given address. Others instead like to use city or county limits as boundaries. What you choose is up to you, but be clear.
4- Know and apply local non-compete regulations. Each state treats non-competes a little differently, so be aware of what, if any, specific rules apply in your state.
If you have any questions about a non-compete agreement, please feel free to reach out to us. We at Irvine Legal have plenty of experience dealing with all facets of non-competes, whether it is writing, enforcing, or defending against them.