Non-compete agreements are a specialized form of contract that, if properly drafted, can help a business retain important employees, protect the business against the loss of valuable proprietary information, and generally enhance the value of the enterprise. Such agreements are not without controversy, however.
During the last legislative session, two bills were introduced which would have significantly restricted the enforceability of any non-compete agreement in Washington State. While the proposed legislation did not move forward, its very existence indicates that there are important public policy issues at stake when using these sorts of agreements. Here are four tips to help you determine if your non-compete agreements are enforceable.
Tip No. 1: Make Sure There is Consideration for the Agreement
Employers are sometimes in such a hurry to get a new hire on board that they don’t complete the HR paperwork at the time of hire. “We’ll get around to that later,” the executive may think. The difficulty, however, is that once the employee has been hired, once he or she has assumed duties, pushing a non-compete in front of them and requiring a signature may be for naught. Any contract requires “consideration,” something to flow from one side to the other. The employee could have a strong argument that since “nothing new” was provided in exchange for the so-called agreement, it was no agreement at all.
Tip No. 2: Make Sure the Territorial Area Covered in the Agreement is Reasonable
Washington State law, like that of her sister jurisdictions, recoils against anything that prevents a resident from earning a living. If your territorial clause is too broad, courts will have little difficulty in finding the agreement unconscionable and, therefore, unenforceable. In the alternative, the court could limit the geographic scope.
Tip No. 3: Make Sure the Length of the Restrictive Period is not Too Long
As with territorial limitations, courts are not prone to support and enforce agreements that restrict the ability of someone to compete for too lengthy a time. While an agreement for a senior executive might restrict that person for several years, a similar time frame for a junior member is not likely to fly. What is reasonable tends to vary from business to business; one size doesn’t fit all.
Tip No. 4: Make Sure the Agreement is Crafted for the Particular Employee
If you use the same form to bind a new hire straight out of college with an experienced software engineer, you’ll likely end up with not one, but two unsatisfactory agreements. All too often, the HR department seems interested in checking off matters on a list. Withholding documents, check; insurance forms, check; non-compete agreement, check – care needs to be given to the content of all agreements, not just their existence in the person’s HR file. If an employee can show a pattern of behavior – for example, that you require all employees to sign the same sort of non-compete agreement, he or she can argue you really don’t take the process seriously and, therefore, neither should a court of law.
Skilled, Experienced Legal Counsel is a Key to Crafting and Drafting Non-Compete Agreements
Does your business need one or more non-compete agreements to help protect your interests? Are you concerned that key employees might take proprietary information with them when they leave? Do you have other related concerns? Blado Kiger Bolan, P.S. has over 30 years of combined experience providing both individuals and businesses with quality legal services throughout the Pacific Northwest. We have drafted numerous non-compete agreements and understand the intricacies involved in crafting an enforceable agreement. We pride ourselves on designing the simplest, most effective solution for your legal issue. Because of our firm’s extensive experience in business litigation, we are also better equipped than many law firms to help you avoid the expense of a court battle. For assistance with a non-compete agreement or any other type of business issue, contact us on the web, or call our office at 253-272-2997.