Covenants not to compete (Non-Compete) have become increasingly common in recent years. In fact, some argue that they have become too common, adversely affecting the economy and creating unnecessary problems for both employers and employees.
These agreements can be vital to protecting a business’ interests as long as they are crafted carefully and used judiciously. If you plan to use non-competition agreements, it is crucial that you make sure they are effective and enforceable. This means avoiding the following issues that can trigger a dispute:
1. Overly broad terms – If you plan to restrict employees based on territory, making those restrictions too broad can make the agreement unenforceable. The same goes for the duration of the agreement. Be specific and reasonable in the scope of the contract to avoid legal conflicts.
2. Unreasonable restrictions – Similarly, unreasonable restrictions can lead to challenges. Agreements that include restrictions that create undue hardship or do not serve a legitimate purpose may not be upheld in court.
3. Unlawful agreements – Non-compete agreements are legal documents, and they must comply with state laws. The Massachusetts Non-competition Agreement Act went into effect on October 1, 2018. The new law, which applies to both employees and independent contractors, generally bans employment-related non-compete agreements in Massachusetts, unless they meet certain statutory requirements.
4. Lack of valuable information – In order to be enforceable, a non-compete must protect a legitimate business interest. This includes trade secrets, confidential business data and other information not available to the public. If the employee did not have knowledge or access to such information, a covenant not to compete may be unnecessary and struck down by the courts.
As such, employers would be wise to seek legal guidance when crafting a covenant not to compete. If you already use them, you can review existing non-compete agreements with an attorney to ensure they are valid. Failure to ensure non-compete agreements are necessary and enforceable could mean compromised confidential information or good will.
Our seasoned Employment Law attorneys provide employers in Massachusetts with a thorough review of their existing forms of non-competition agreements to ensure compliance with the new requirements and to ensure that their hiring practices comply with the notice requirements of the law.
We also advise clients prior to entering into a non-compete agreement or other restrictive covenants. Our attorneys administer a thorough review and explanation of the agreement and its potential impact on future employment. Clients with existing non-compete agreements or restrictive covenants, who plan on leaving employment, often seek our advice and review of the agreement to negotiate a release. These agreements can often be the difference between finding employment in a chosen field or forgoing said employment during the life of the agreement.
Kurt Binder, Partner