Covenants not to compete are now enforceable in many states, including North Carolina. Early decisions on anti-competitive agreements reflect the reluctance of the common law to enforce such agreements, noting that “employment-restricting contracts are viewed with dissatisfaction in modern law.” Kadis v. Britt, 224 N.C. 154, 160, 29 S.E.2d 543, 546 (1944). However, recent decisions have been willing to maintain anti-competitive agreements: “Although the law disapproves of unreasonable restrictions, it favours the performance of contracts designed to protect legitimate interests. It is as much a public concern to ensure that valid commitments are honoured as it is to frustrate oppressive commitments. Sonotone Corp. v. Baldwin, 227 N.C.
387, 390, 42 S.E.2d 352, 355 (1947). The reason for this is that otherwise employers would have no incentive to draft reasonable agreements, and workers who do not know their rights would assume that they are bound by unenforceable agreements. The courts shall examine whether the geographical area covered is proportionate to the interests to be protected. This depends in part on the specific services provided by the employee and the interests of the employer that are at stake. For example, for commercial agents, agreements that apply to geographic areas where employees did not work for their former employers are often considered too broad. Because of the many interrelated factors, determining the relevance of an anti-competitive agreement is not an exact science. In fact, there are no hard and fast rules for every situation, but several Court of Appeal decisions can provide clues as to how courts can assess relevance in certain circumstances. What is considered appropriate geographic scope? It depends. Courts often consider these factors: territorial scope, duration, nature of the limitation of obligations, and consideration – in relation to each other.
For example, a broad geographic scope – say, an entire state – may be more enforceable if the duration of the restriction is short – say a month. On the other hand, a broad geographic scope combined with a long period of prohibition is more likely to be declared inapplicable by a court. When considering territorial scope, courts look at the services provided by the employer. The court will generally not allow non-compete obligations that prevent an employee from working in an area where the employer does not do business. The North Carolina Supreme Court upheld the trial court`s decision dismissing the lawsuit to enforce the treaty. According to the court, the agreement “excludes the defendant from too much territory and too many activities.” Henley, 253 N.C. at 534, 117 S.E.2d at 434. The court stated that the employee had no connection to industrial paper; But the federal government excluded him from the industrial paper business. As an employer, you don`t want your competitors to hire your best employees to gain an unfair competitive advantage – you`ve invested time in growing your business, researching your product or service, and building your customer base. You deserve the benefits of all your hard work. As an employee, however, you want to be able to change jobs freely.
If another company offers you a significant raise and better benefits, you want to be able to take that job without having to worry about lawsuits your old company may take. For these reasons and many others, it is important to know what a restrictive covenant is and how it works. I had a non-competition clause in my job, but I was fired. Can they impose it against me even if they have decided to fire me? It depends. First, look at the terms of the non-compete obligation itself. Is this a termination? Assuming this is the case – and it is said that the non-compete obligation will still apply even if you are licensed – the next question is: is it legal? Again, the answer is: it depends. If the reason for your dismissal is employer misconduct – discrimination, illegal employer activities or similar misconduct – then most courts have ruled that a non-compete obligation is no longer enforceable. Indeed, the employer`s unlawful conduct was not part of the employee`s expectations at the time he accepted the non-compete obligation. If the reason for your dismissal is an employee`s fault – attendance, poor performance, or similar problems – then the fact that you were fired probably won`t be that important. Nevertheless, the courts may be less interested in applying a non-compete rule if it was the employer`s decision to terminate the relationship, not yours.
An interesting way to create incentives for employees not to compete is to include a clause in the employment contract that loses deferred compensation if the employee competes after leaving the employment relationship. Let`s take the example of an employment contract where an employee receives commissions for the sale of service contracts. The employment contract provides that the employee continues to receive commissions for the renewal of employment contracts for a period of three years after the end of the employment relationship, unless the employee works for a competitor within twenty miles of the employer. If the employee moves to a competitor, he immediately loses all rights to renewal commissions. Our company was bought by another company and now we are told that we are subject to non-compete obligations. Can the new employer enforce the agreement against us? Probably not. Most courts require you to agree to the terms of a non-compete obligation, such as by reading and signing. It is usually not enough for the employer to simply tell you that they are there for you to be bound by their terms. I was asked to sign a non-competition clause after I had already started working for the employer. Is it legal? Yes. However, whether it is legal for the employer to take adverse action against you — such as firing you or writing to you — because they refuse to sign depends on the circumstances of your case and may depend on whether the agreement the employer expects from you is enforceable under your state law. Contract law issues in your state can also be a factor in determining whether an agreement you are forced or threatened to sign is enforceable.
The first is whether your employer is obliged to pay you additional money or to give you some other consideration, as we saw in the previous question. For example, in Young v. Mastrom, 99 N.C. App. 120, 392 S.E.2d 446 (1990), disc. examination denied, 327 N.C. 488, 397 S.E.2d 239 (1990), an employee never saw an employment contract or an anti-competitive agreement before being asked to sign it after three days of work. The Court of Appeal upheld the conclusion that the agreements were unenforceable for lack of consideration. Young, 99 N.C.
App. at 124, 392 S.E.2d at 449. Obligations not to compete are often applied when the former employer`s “confidential information” may be used or disclosed, unless the employee is excluded from the competition. The employer must generally prove that it has kept the information relatively secret from the public and competitors and that the information gives the employer a competitive advantage or would be useful to competitors. If a former employee violates an enforceable agreement, courts will generally enforce the agreement by issuing an injunction preventing the employee from violating the agreement. The court may also award damages for losses already caused by the breach. A common question that arises in the employment context is whether a company can prevent departing employees from competing with it, recruiting customers, or using company information for their own purposes. Contractual provisions prohibiting former employees from participating in these types of activities are commonly referred to as restrictive agreements. This practice point summarizes the most important points every practitioner should know about restrictive covenants. If you`d like to learn more, download this detailed overview of restrictive alliances.
Different states have different attitudes towards a federation, so as not to compete: There are four basic types of restrictive alliances.