Non-compete agreements are common in many industries. These agreements aim to protect a company’s interests by preventing employees from working for competitors or starting competing businesses. However, there are situations where these agreements may not hold up in court.
Understanding why a non-compete agreement may be unenforceable is important for employers and employees.
Lack of consideration
A reason a non-compete agreement might be unenforceable is the absence of consideration. This means the employee did not receive something of value in exchange for agreeing to the restrictions. If an employee signs a non-compete agreement after hiring without receiving any compensation or benefit, the agreement may be invalid.
Overly broad restrictions
Non-compete agreements must be reasonable in scope to be enforceable. If the restrictions outlined in the agreement are too broad, a court may deem the agreement unenforceable. For example, a non-compete agreement that prohibits an employee from working in any capacity within a specific industry for an extended period may be too restrictive.
Unreasonable duration or geographic scope
The duration and geographic scope of a non-compete agreement must also be reasonable. If the agreement prohibits an employee from competing with the employer for an unreasonable period, it may be unenforceable. The same holds true for an agreement that covers too wide of a geographic area. Courts consider the nature of the industry, the employee’s role and the employer’s legitimate business interests when evaluating the reasonableness of these restrictions.
Violation of public policy
Non-compete agreements that violate public policy may also be unenforceable. For example, agreements that prevent employees from pursuing lawful occupations may be against public policy. As a result, they may be unenforceable.
Employers should draft these agreements with care to ensure they are reasonable in scope and serve a legitimate business purpose. Employees, meanwhile, should understand their rights and obligations before signing such agreements.