Non Compete Agreements & Restrictive Covenants | Explained by a lawyer

Summary

In this episode of 'All Up In Yo' Business,' attorney Aiden Durham from 180 Law Co in Denver discusses the basics of non-compete agreements. She explains what they are, how they work, and why they're important, particularly in protecting an employer’s proprietary information. Aiden emphasizes that non-competes vary by state, with some states, like California and Colorado, placing strict limitations on their enforceability. She also touches on alternatives like non-disclosure agreements for protecting business interests when non-competes aren't viable. Aiden advises consulting a local attorney for specific guidance, as non-competes can be complex and highly dependent on jurisdiction.

Takeaways

• 📝 Non-compete agreements (also known as restrictive covenants) limit an employee's ability to compete with their employer after leaving the job, typically to protect trade secrets or confidential information.
• ⚖️ The enforceability of non-competes is highly dependent on the state or jurisdiction. Some states, like California and Colorado, generally disallow them except in certain circumstances.
• 📜 Non-competes are commonly used to protect an employer's proprietary information, trade secrets, and investments in employee training, preventing employees from using those assets to compete.
• 💼 Non-competes can apply in various situations, not just in employee-employer relationships, but also in business mergers, acquisitions, or partnerships.
• ❌ Some states have laws that broadly invalidate non-competes, except in specific cases, such as high-level executives or the sale of a business.
• ⏳ Non-competes must be reasonable in scope, duration, and geographic area. Courts typically consider up to two years as reasonable for duration, though it can vary depending on the employee's role and exposure to sensitive information.
• ⚕️ Certain professions, like legal and medical, often cannot enforce non-competes because they may restrict public access to essential services.
• 💡 Confidentiality agreements or non-disclosure agreements (NDAs) are often used alongside or in place of non-competes to protect sensitive information without restricting competition.
• 📍 When drafting a non-compete, it's essential to tailor the geographic scope and duration based on the employer’s business and the employee’s exposure to proprietary information.
• 🔍 The enforceability of a non-compete is uncertain until it is challenged in court, and employers should consult with legal professionals to ensure the agreement aligns with local laws.

Q & A

What is the primary purpose of a non-compete agreement?

The primary purpose of a non-compete agreement is to protect the employer’s proprietary information, trade secrets, and intellectual property. It restricts an employee from competing with the employer’s business after leaving the company.

In which contexts, besides employer-employee relationships, can non-compete agreements be used?

Non-compete agreements can also be used in contexts such as business sales, mergers, acquisitions, and business partnerships.

Why do courts often not favor non-compete agreements?

Courts are often hesitant to enforce non-compete agreements because they recognize that such agreements can limit an individual's ability to earn a living and compete in the job market.

Are non-compete agreements enforceable in every state?

No, the enforceability of non-compete agreements varies by state. Some states, like California and Colorado, largely invalidate non-competes, except in specific circumstances like business sales or high-level executive positions.

What are some alternative ways employers can protect proprietary information if non-competes are unenforceable in their state?

Employers can use non-disclosure agreements (NDAs) or confidentiality agreements to protect their proprietary and confidential information when non-competes are not enforceable.

What factors affect the reasonableness of a non-compete agreement?

The reasonableness of a non-compete agreement is determined by factors like its duration, geographic scope, and the level of exposure an employee had to the employer's proprietary information.

How might the geographic scope of a non-compete be defined in an agreement?

The geographic scope of a non-compete could be limited to specific areas where the employer does business, such as within a state or a certain mile radius of the employer’s office locations. For online or worldwide companies, the geographic scope might be broader.

What is typically considered a reasonable duration for a non-compete agreement?

A common duration for non-compete agreements is up to two years. Courts generally consider this to be a reasonable time frame for preventing competition, depending on the employee's role and the level of proprietary information they were exposed to.

Can non-competes be used in professional fields such as law or medicine?

In many states, non-competes are not enforceable in the legal and medical professions, as they could limit public access to legal or medical services, which is against public policy.

What should an employer consider when drafting a non-compete agreement?

When drafting a non-compete agreement, an employer should ensure the agreement is reasonable in terms of duration and geographic scope, includes sufficient consideration, and is in compliance with the laws of the state where the agreement will be enforced.