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What makes a non-compete agreement unenforceable?

On Behalf of | Mar 29, 2023 | Business Law |

A non-compete agreement is a private contract between you and your employee that prohibits that employee from working for your competitor or starting a competing business for a certain period after leaving their position. A lot of companies consider them indispensable for key employees, partners, contractors and even their creative talent.

However, these agreements may be unenforceable in certain circumstances. Here are some factors that could make a noncompete agreement unenforceable:

Unreasonable restrictions

If the non-compete agreement is too broad or imposes unreasonable restrictions, it may be deemed unenforceable.

For example, if the agreement prohibits an employee works in a technical field where information and data change rapidly within six months, it could be considered overly restrictive and unfair to prohibit them from working in that field for the next three years.

Similarly, non-compete agreements that cover too large of an area may be considered unreasonable. For example, if an agreement prevents an employee from working in their field in the entire country to protect a purely local employer’s interests, it may be deemed overly restrictive.

Lack of consideration

A non-compete agreement must be supported by adequate consideration, such as a job offer, a bonus or a promotion.

If an employee is asked to sign a non-compete agreement after they have already started working and they are not offered any additional compensation or benefits in exchange for signing the agreement, the agreement may not be enforceable.

No legitimate business interests

Finally, non-compete agreements have to serve a legitimate business interest. You can’t just wholesale bar a former employee from working in their field for no reason.

For example, you may be able to enforce a non-compete agreement that protects the programming projects you have in development, but you probably cannot bar your former employee from working as a programmer on unrelated projects for someone else.

It can be difficult to understand where to draw the line with a non-compete agreement, which is why many companies carefully craft them with experienced legal assistance.