Non-compete agreements are increasingly used by employers throughout North Carolina. They are most commonly used with key employees, such as executives or salespeople, to prevent them from going to work for a competitor and taking business with them. When an employee leaves his job, a valid non-compete agreement will prevent him from working for a competitor for a certain period of time, usually within a set geographic area.
Non-compete agreements are not viewed favorably under North Carolina law. To be valid, they must be designed to protect a legitimate business interest of the employer. If it is too broad to be considered a reasonable protection of the employer’s business, it will not be enforced.
Elements for an enforceable non-compete agreement.
To be enforceable under North Carolina law, non-compete agreements between an employer and employee must be:
(1) in writing;
(2) made part of a contract of employment;
(3) based on valuable consideration;
(4) reasonable both as to time and territory; and
(5) not against public policy.
“Consideration” is required for any contract to be valid. It simply means that both sides are giving something to the other, and is usually described as a “bargained for exchange.” This can be an issue in non-compete cases when an employee is asked to sign a non-compete months or years after they begin working. Unless the non-compete is supported by new consideration (such as a year-end bonus), it will not be valid.
In determining whether the non-compete agreement is reasonable as to time and territory, the court will review the time and the territory together. For instance, a non-compete agreement limiting your employment for five years over all 50 states is very likely going to be viewed as overly broad and therefore unenforceable. Every non-compete is unique and the court deciding whether it is valid will carefully review its language and the circumstances to determine if the time and geographic scope are reasonable.
In terms of public policy, if the non-compete agreement is merely being used to stifle normal competition, it is offensive to public policy in promoting a monopoly at the public expense, and will not be enforced. For example, if a physician in a small town had a non-compete agreement that would keep other physicians from practicing in the small town, thereby creating a public health concern, it would likely not be enforceable.
What can my employer do if I violate the non-compete agreement?
If your employer believes you are violating the non-compete agreement, they can sue you and not only try to get money damages, but try to get an injunction. An injunction is where the court will order you to stop violating the agreement, at least while the lawsuit is progressing. In some cases the employer will seek to obtain a temporary restraining order (also known as a “TRO”) to immediately keep you from violating the non-complete agreement.
Once the lawsuit has been filed, it will typically not be dismissed unless the parties settle the dispute. In the context of a non-compete agreement, this typically means the employee will end up paying the employer some amount of money, and perhaps agreeing to abide by some form of a non-compete agreement.
Will the court re-write my agreement?
In some states, if a non-compete agreement is too broad, the court will re-write the agreement to make it enforceable. For example, if the agreement was for 5 years over two states, the court may re-write the agreement to say one year over one state. In North Carolina, however, our “blue pencil” rule severely limits what the court may do to alter the non-compete agreement. A court at most may choose not to enforce a distinctly separable part of a covenant in order to make the provision reasonable. It may not otherwise revise or rewrite the covenant.
The courts will not rewrite a contract if it is too broad but will simply not enforce it. If the contract is separable, however, and one part is reasonable, the courts will enforce the reasonable provision.
What should I do?
If you have a non-compete agreement and are thinking about going to work for a competitor, I would encourage you to speak to an attorney who can review your non-compete agreement and assess its validity. In many cases it is also a good idea to have a frank discussion with your employer about your situation. Very often they are willing to release you from the non-compete if they feel like you were open and honest with them about your intentions.