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Non-compete Litigation Is on the Rise: Is Your Business Truly Protected?

Non-compete Litigation Is on the Rise: Is Your Business Truly Protected?

The Inside Perspective
(November 13, 2013)

Frequently companies protect their confidential information, proprietary business practices, and customers by asking key employees to enter into agreements with non-compete, non-solicitation, and confidentiality provisions. These types of restrictive covenants can be critical to protecting the business when a key employee leaves. But, more and more, disputes over the enforceability of non-compete agreements are ending up in court. Employees are fighting the restrictive covenants to which they earlier agreed. The Wall Street Journal recently reported that the number of published court decisions involving non-compete agreements has risen more than 60% since 2002—a meteoric rise that does not account for non-compete cases that settle out of court.

TIP: The difficult task is making sure the non-compete agreement remains current, as our workplaces are dynamic and an employee's roles and responsibilities can change dramatically in a year's time. An employee's annual review (and resulting raise and/or promotion) is a good time to review, update, and even re-negotiate non-compete agreements.

Against this backdrop of increased litigiousness, what should your company do to protect itself and try to ensure the validity of its non-compete, non-solicitation, and confidentiality agreements?

  1. Tailor your covenants to "fit" your subject employee. Covenants, in order to survive judicial scrutiny, must be in writing, protect an articulable business interest of the employer, and include time and territory restrictions that are both reasonable and consistent with the company's business, geographic footprint, and/or client relationships. They must also "fit" the particular employee who is agreeing to the restriction. "Fit," however, is a function of state law, which can vary considerably. Having your agreements reviewed by counsel before they are signed by employees can help avoid many state-specific pitfalls.
  2. Keep your employee's non-compete agreement current. It should reflect that employee's actual current duties, responsibilities, and territories—not those from a prior position or those from the time the agreement was executed years ago. The general provisions in a non-compete, non-solicitation, and non-disclosure agreement can provide some assurances for an employer. But for these agreements to work best and withstand judicial scrutiny, employers must periodically review and re-negotiate them to keep them up-to-date. Note, however, that any re-negotiation should coincide with a promotion or other additional benefit to the employee to be enforceable.


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