Noncompetes: Death by breadth

03/13/2011

Noncompete agreements are common in the construction industry for key employees. There are valid reasons for this, such as the expense of train-up, knowledge growth, and client access employees would never otherwise get or have. But courts simply do not like noncompete agreements, primarily because they are loath to prohibit someone from working in the trade for which they have trained. Therefore, it is critical to specifically tailor and limit a noncompete agreement, if you chose to use one for key employees.

First, consider if the person upon whom you are trying to impose a noncomplete really needs one; that is can he or she truly harm you if they go to a competing company? Second, consider reasonable time and distance limitations; that is where do you really do business and for how long could the information the ex-employee has really hurt you? There are no definitative positions, distances or times, and each noncomplete will be scrutinized individually by the judge reviewing it. A recent example of overbreadth struck by the court involved a noncompete that prohibited an ex-employee from performing similar serves of the same type, “directly, or indirectly, for [herself] or as an agent, officer, director, member, partner, shareholder, independent contractor, owner or employee . . . .”

The court looked at the breadth of this prohibition and noted, for example, it would prohibit the employee from even owning stock in a publicly traded company if some part of that company provided the same types of services, and struck it as against public policy and unenforceable. The lesson: if you are going to use noncompetes, be very careful how they are written and in particular why, what and how they prohibit the conduct. Even then, it’s a bit of a crap shoot as judges are often more inclined to find reasons to strike them then enforce them.

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