Written by Josh Brekken, Attorney
Noncompete agreements (NCAs) are an essential part of doing business in many industries.
As an employer, you don’t want your employees to use your company as an information gathering/lead generation device only to jump ship, absconding with your best clients and insider info. Nor do you want to hire and train someone who, unbeknownst to you, is beholden to an NCA from their previous employer. (Talk about a wasted investment!)
We’re going to cover a few critical elements of NCA preparation, both from the perspective of an employer and an employee.
NCAs may be commonplace, but they are remarkably misunderstood. Many employers erroneously assume that they can draft an NCA that suits their needs, and if an employee signs it, the company is protected. That’s far from the case.
The enforceability of an NCA is contingent on a number of factors, including:
- The scope of the company’s business interests
- The company’s geographic domain
- The desired timeline of the NCA
If an NCA steps outside the boundaries of fairness/reasonability (as determined by a court) on any of these elements, the whole NCA can be rendered unenforceable.
Some common missteps include making an NCA too broad (e.g., implementing a nationwide restriction on subsequent employment with a competitor when your business interests are limited to a specific metro area) or rigid (e.g. requiring more than a two-year timeline of enforceability). If a court thinks you’ve unnecessarily restricted an employees’ ability to earn a livelihood, your NCA isn’t worth the paper it’s printed on.
Another frequent error involves existing employees. While NCAs are usually part of a negotiation package with a new hire, sometimes an employer that didn’t previously have NCAs in place will decide to draft an NCA to apply to all employees. The problem: You can’t require existing employees to sign an NCA without properly compensating them. As an employer, you wield a lot of power. Asking employees to give up some of their rights via an NCA necessitates a fair exchange (think: promotion, raise, bonus, etc.) or else most courts will determine that you’ve abused your power and negate the NCA.
If you’re thinking: “This all sounds very nebulous,” you’d be right. There is no hard and fast rule regarding NCAs, so there are a lot of ways to get it wrong.
The solution: When drafting an NCA, seek the counsel of an attorney experienced in this type of business document. At Johnson/Turner Legal, we frequently assist in the development of NCAs, taking into account the unique circumstances of the individual business.
And if you’re an employee? Don’t underestimate an NCA. It’s all too easy to gloss over an NCA, casually signing it by default when it appears in a big stack of hiring-related documents. Many employees fall into one of two traps:
- Signing an overly restrictive NCA and assuming it is ironclad, without realizing that there may be legal recourse to contest it; or
- Signing an NCA without truly reading it and understanding the implications that the NCA—if enforceable—may have on future career prospects.
Again, the solution involves having the right people on your side. An attorney can (and should) review any employment-related documents before you sign—and any employer with integrity should support your right to seek counsel.
At Johnson/Turner Legal, we can navigate just about any NCA-related situation. And while we’re well-versed in the court battles that often arise as a result of contested NCAs, we always recommend seeking counsel before drafting or signing an NCA.