Christopher Ghazarian, general counsel for web hosting company DreamHost, said: “The most important question a business owner can ask is: Why do we need a non-compete clause in the first place?” Lack of consideration. One of the most common mistakes made by employers is not providing the employee with legal “consideration” in exchange for signing a non-compete obligation or other restrictive agreement. Legal consideration is a necessary part of any enforceable legal contract and can be broadly described as something of value to which the employee is not already legally entitled. For example, if an employer asks an existing employee to sign a non-compete clause without providing anything of value in return, the applicability of the agreement may be challenged on grounds of lack of consideration. Under Wisconsin law, this consideration may include a job offer, discretionary bonus (as opposed to promised), promotion, etc. In the case of an existing employee, maintaining employment may be a reasonable consideration, but only if the employer clearly indicates that the continuation of the existing employee`s employment with the employer is subject to the signing of the agreement. It is important to note, as we have already mentioned, since the non-compete obligation is currently a matter of State law, this may not be the case in all States. For example, in Illinois, starting in January, agreements must provide workers with at least two years of unlimited employment after the agreement is signed. If the employer dismisses the employee before the expiry of the two-year mark, the agreement may not be enforceable.
NON-COMPETE OBLIGATION. For the duration of this Agreement and for [the Term] after the termination of the Employer`s relationship with the Employee for any reason, the Employee will not work as an employee, officer, director, partner, consultant, agent, owner or engage in any other function with a competing business. This means that the employee is not allowed to perform work to [describe the type of business] in [geographic area]. Some companies are moving away from non-compete clauses in favor of solicitation bans that allow former employees to work for a competitor, but restrict their access to previous customers or customers. Although the courts also disapprove of such provisions, they are more in favour of them because, unlike non-compete obligations, they do not prevent individuals from finding work in a chosen field. If an employer imposes a territorial restriction that goes beyond its actual activities or the scope of its activity, it risks the applicability of its non-compete obligation. A court may find that such overreach unduly prevents the employee from earning a living in a manner that does not protect the legitimate interests of the employer. If an employer uses a non-solicitation clause to limit a former employee`s ability to contact one of its clients – even those the employee has never met or recently dealt with – a court may find the agreement too broad. A standard non-compete obligation is a formal agreement between an employer and an employee that states that the employee does not engage in any employment activity that is competitive or contrary to his or her main occupation. “Concerns about intellectual property and trade secrets can often be addressed in employment contracts, but in the real world, it`s hard to prove misappropriation of information after an employee jumps off the board and starts working for a direct competitor. Of course, you can take legal action once the injury is evident in the future, but the damage may have already been done,” he noted. A non-compete obligation must meet the basic requirements of a valid contract.
These essential elements include offer, acceptance and consideration. The two parties must mutually agree on the terms of the agreement, and both parties must take into consideration to seal the agreement. The non-compete obligation must specify exactly what is to be treated confidentially and how the confidential information relates to the connection of employees, contractors or business customers with the company. In addition, the contract must specify the duration of the agreement. The non-compete law on the sale of a business is relatively uniform in Virginia, Maryland and the District of Columbia. A non-compete obligation will be interpreted strictly against employers and will be deemed enforceable if the agreement as a whole is deemed appropriate. The courts require that non-compete obligations be tailored as closely as possible to protect the vital interests of the employer while giving a former employee the opportunity to pursue a career. A non-compete obligation is enforced if (1) the agreement is closely suited to the protection of the employer`s legitimate business interests, (2) the agreement does not unduly burden the employee`s ability to earn a living, and (3) the agreement is appropriate from a public policy perspective. The burden of proof of these factors rests with the employer. In determining whether an employer has discharged its burden of proof for these factors, the court considers the function of the restriction, the geographic scope of the restriction and the duration of the restriction.
The tribunal analyzes these aspects together and not as separate investigations. Although non-compete obligations are enforceable in these states, they are considered adverse trade restrictions. For this reason, the employer bears the burden of proving the ambiguities of the agreement. In addition, the courts will interpret any ambiguity in the agreement in favor of the employee. If a provision of a non-compete agreement can allow more than a reasonable interpretation, a court will declare it ambiguous. Where a provision is unambiguous, it shall be read in its clear sense. A non-compete agreement between a buyer and seller of a business is given more consideration than an agreement between an employer and an employee. There are more risks associated with selling a business. The buyer has a legitimate interest in maintaining the goodwill of the company he has acquired. The seller is more obliged not to compete with his former company, because he receives a financial counterpart in exchange for the goodwill of the company.
As noted in Checket-Columbia Co., a court will apply an appropriate geographic restriction even if the former owner`s business is located outside the zone, but applies in the restricted area. Non-compete obligations can be extended in the context of a buyer and seller of a company and still deemed enforceable. In addition, any non-compete obligation is assessed on the basis of the facts and circumstances of the case. As in Capital One Fin. Corp., a restriction that may be considered too broad may nevertheless be enforceable due to the particular capabilities of the parties. As in a contract of employment, a non-compete obligation in a contract of sale of an undertaking must be of reasonable scope. Based in the Chicago area, our commercial litigation lawyers can assess whether this is true. The non-compete agreement generally prohibits the seller from working or joining companies in the same or similar industries as the company being sold. .
