When one of your employees packs up their photos, knickknacks and coffee mug after being let go, quitting or fulfilling their contract, they might also pocket clients and relationships they’ve developed while working with your company.
To prevent this loss of some of your company’s most valuable assets, maybe you had them sign an agreement to not join or start a business like yours or lure customers away. If not, consider asking your next hire or contractor to sign a non-compete agreement, or covenant not to compete (CNC).
The value of CNCs to a company may be obvious, but the popular mood and even legislative and legal momentum about non-competes is not very positive. A serious question lingering for many is what kind of CNCs are enforceable if it becomes necessary to defend them?
Enforceable CNCs need to be reasonable
One key to thinking about enforceable covenants is reasonableness, specifically when it comes to activity, time and geography.
Take the hypothetical example of a Dallas salesperson at your recreational personal water craft (PWC) company. The “activity” element of an enforceable CNC would likely bar the employee from selling more PWCs. But a CNC prohibiting selling farm equipment like tractors may be seen as unreasonable and unenforceable.
A CNC with a “time” element barring the employee from selling PWCs for 6 months might be enforceable, but a duration of 5 or 10 years may not stand up. This could be especially true if, in this fictional example, the market for PWCs is especially fluid with a high turnover of buyers entering and leaving the market every day.
Finally, the “geography” of an enforceable CNC might bar sales in Dallas-Fort Worth or possibly all of Texas. But if there’s very little overlap between the markets in Texas and, for example, Minnesota or Maine, then a CNC with too broad a geography would likely be unenforceable far afield.