For many businesses, non-compete agreements have long been used to protect confidential information, customer relationships, and other valuable business interests. However, the legal landscape surrounding non-compete agreements has changed significantly in recent years. While a nationwide ban on non-competes has not taken effect, many states have enacted new restrictions or heightened scrutiny of these agreements.
As a result, employers should not assume that a non-compete agreement drafted years ago will remain enforceable today. Businesses should regularly review their employment agreements to ensure they are appropriately tailored, legally compliant, and consistent with their current goals.
Here are four important issues employers should consider when evaluating non-compete agreements:
1. State law is more important than ever
There is no single nationwide standard governing non-compete agreements. Some states prohibit non-competes almost entirely, while others impose limitations based on factors such as an employee’s income level, industry, or the scope and duration of the restriction. Employers operating in multiple states should ensure their agreements account for these differences.
2. A broad restriction may be difficult to enforce
A non-compete should be designed to protect a legitimate business interest, not simply prevent an employee from seeking other employment. Restrictions that are too broad in geographic area, duration, or prohibited activities may face increased scrutiny.
3. Consider alternative protections
In some situations, confidentiality agreements, trade secret protections, invention assignment agreements, and carefully drafted non-solicitation provisions may provide meaningful protection while avoiding some of the challenges associated with traditional non-compete agreements.
4. Review existing employment agreements regularly
Employment agreements should not be viewed as “set it and forget it” documents. As laws change and businesses evolve, employers should periodically review restrictive covenants and related policies to confirm they still accomplish the intended purpose.
Protecting a business’s relationships, confidential information, and competitive advantage remains important. However, the methods used to achieve those goals must evolve alongside changing employment laws. A proactive review of existing agreements can help employers protect their interests while reducing the risk of future disputes.