Noncompete Agreements

We have a guest blogger on Direct Talk today - Jennifer M. Vuillermet

Noncompete agreements (or covenants not to compete) are agreements between the employee and the employer that prohibit the employee from working for a competitor of the employer for some period of time after the employment ends. They are designed to protect the trade secrets and business relationships of the employer. They are often improperly used, and courts enforce them very strictly so that people are not prevented from earning a living.

In North Carolina, a valid noncompete agreement must be:

· in writing;

· made before or during the employment;

· reasonable as to time and territory;

· related to a legitimate business interest and not punishment for leaving employment;

· supported by a mutual exchange of something of value, known as “consideration” in contract law.

There is no formula for what time and territory is acceptable in a noncompete. The court will determine what is reasonable based on the employee’s job duties, where they worked, how much client contact they had, where the clients are located, etc. The noncompete must be limited to restricting the employee from working in a similar job with the competitor. For example, if the employee is a mechanic for the employer, they must be able to take a job as an accountant at a competitor.

Noncompetes signed on or before the first day of work are considered enforceable because taking a job is considered adequate consideration for entering into a non-compete agreement. In North Carolina, a noncompete is not valid if the employee must sign a noncompete to keep their job. They must receive a promotion, a raise, a bonus, or some other valuable consideration for limiting their right to work after employment ends.

Noncompete agreements should be individually tailored to the employee’s role in the company and their activities. They should be used only with top-level executives who know the trade secrets and proprietary information of the employer. They are often over-used with low-level employees.

For this reason, the federal National Labor Relations Board (NLRB) recently issued guidance stating that noncompete agreements can only be used with employees who qualify as "supervisors" under the National Labor Relations Act.

Additionally, on Jan. 5, 2023, the Federal Trade Commission (FTC) proposed a ban on noncompete clauses, saying one in five American workers (estimated at 30 million people) is affected by noncompetes, preventing them from pursuing better opportunities or working conditions. Eliminating noncompete agreements would increase wages by nearly $300 billion a year and save consumers up to $148 billion a year on health care costs. The rule would apply to employees and independent contractors, paid and unpaid. It would require employers "to rescind existing noncompetes and actively inform workers that they are no longer in effect.

If you have questions about your non-compete agreement, please contact: