Covenants not to compete are a popular tool to prevent employees from doing harm after their employment has ended. Too often, however, companies head to court when an employee violates the agreement, only to have the court refuse to enforce it. Here are some ways you can increase the chance your covenants will be enforced.
1. Know your covenants. Courts and businesses sometimes use imprecise terms when referring to post-employment restraints on an employee. There can be different legal standards that apply to each type of restraint, so know your covenants before you start drafting.
3. Know the law. Before requiring the covenant, make sure that it complies with the law of the state in which the employee is working and the law of the state that governs the agreement. States vary widely in their willingness to enforce post-employment restrictions. For example, in California, it is generally illegal for an employer to impose a post-employment non-compete covenant on an employee (with certain exceptions). In New York, a non-compete can be unenforceable if the employee is terminated without cause. Some states will rewrite overbroad covenants and enforce them as reasonable, and other states will strike down all restrictions in the same section or agreement if one restriction is overbroad. Not all courts will honor the agreement’s choice of law.
4. Have the right process for obtaining non-competes. Courts will only enforce agreements when they are supported by adequate consideration. In most states, a court will uphold a covenant restricting competition only if it is in writing and signed by the employee. Your process for obtaining the covenants should address all factors required for enforceable covenants.