A recent article in Barron’s states that there has been a 60% increase in employers suing departing employees for violating non-competition agreements in the past decade. Overzealous restrictions may be stifling entrepreneurship.
Courts, including those in North Carolina, however, are reluctant to enforce non-compete agreements and prevent someone from earning a living. It is essential for companies to thoughtfully craft their non-compete agreements to protect their legitimate business issues, but not be over-zealous (and the agreement be unenforceable). It can be a tricky balance.
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In North Carolina, a restrictive covenant is valid and enforceable if it is:
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in writing entered into at the time and as a part of the original contract of employment
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based on a valuable consideration
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reasonable both as to the time and territory
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designed to protect a legitimate business interest of the employer
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not against public policy.
In determining whether restrictions on competition are reasonable, North Carolina courts balance the following factors:
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the area, or scope, of the restriction the area assigned to employee
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the area in which the employee actually worked or was subject to work
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the area in which the employer operated
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the nature of the business involved
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the nature of the employee’s duty and his knowledge of the employer’s business operation.
Because this is a balancing test, the analysis of whether the agreement is enforceable will vary case by case. A long time period may be enforceable where the geographic scope is very limited and the definition of competition is very limited (and vice versa). If the non-competition agreement for an employee is found by a court to be unenforceable, you may have trouble the same agreement against other employees. It is important to get it right to protect your business.
