Is Your Non-Compete Agreement Enforceable?

The work place in today’s ever-changing society is competitive.  Skills are specialized, and there’s fierce competition for a limited number of jobs.  This environment causes businesses to aggressively protect themselves from employees who choose to open their own competing business or elect to move jobs to a competitor.  

The typical method for such protection is a non-compete agreement, or “restrictive covenant.”  However, North Carolina has extremely specialized rules surrounding non-compete agreements—if your agreement isn’t crafted precisely in line with these rules, it risks being thrown out.

First, all non-compete agreements must be in writing.  Any verbal agreement not to compete with an employer is unenforceable.  Therefore, the non-compete clause is typically found within a worker’s employment agreement.  Or, it’s often a special “rider” that’s incorporated within the employment agreement.

Second, the non-compete agreement must be narrowly tailored regarding its geographic scope.  In effect, it must be limited to just the geographic scope necessary to protect a business.  For example, let’s say Acme Co. operates business in North Carolina and South Carolina.  The company requires that all its employees sign a non-compete agreement.  

However, the non-compete agreement states that any employee who leaves Acme Co. cannot work in the same or a similar field anywhere in the world.  The geographic scope of this non-compete is too broad, and a court would likely refuse to enforce it.  Any similar geographic scope—such as “throughout the United States,” or “throughout the South-East region”—would also likely be unenforceable.  If Acme Co. would have limited its non-compete to just North and South Carolina, it probably would have been enforceable.

Third, as with geographic scope, all non-compete agreements must also be narrowly tailored in duration.  Courts in North Carolina routinely approve of 1-year competition restrictions within restrictive covenant agreements.  In some cases, courts have approved of 2-year restrictions.  On the other end of the spectrum, courts have also explicitly found that 5-year restrictions are unreasonable, and they won’t be enforced.  Therefore, any restriction that ranges from 1-2 years is likely enforceable—a restriction between 2-4 years is questionable, at best.

Fourth and finally, all non-compete agreements must be supported by “consideration.”  The term “consideration” is a formal legal term that simply means “something of value.”  If an employee is required to sign a non-compete agreement, he or she must receive something of value in exchange for their agreement to execute the document. 

 If the employee is a new hire, giving them the job is enough consideration.  However, if the employee is an existing worker and they are required to sign a non-compete agreement, they must be provided with additional consideration, above and beyond what they previously received before signing the agreement.  Consideration doesn’t necessarily have to be more money—a promotion, additional benefits, etc. all count as “something of value.”

If you or someone you know needs an evaluation of their non-compete agreement, or if you own a company and you need an enforceable non-compete agreement to protect your business, contact the knowledgeable attorneys at Weaver, Bennett & Bland, P.A. today.