Monday, November 14, 2011

Overreaching Dooms Noncompetes

A recent case out of the Virginia Supreme Court shows how important it is for employers to pay attention to the post-employment conduct they are trying to limit when drafting a noncompete agreement. In fact, I frequently tell clients when they are putting these agreements together to be as specific as possible with respect to the position the employee is working now, and use that description as the basis for limiting any future employment with a competitor. Otherwise, the former employer runs the distinct risk of having the noncompete voided by a reviewing court.

In almost every state where they are enforceable (they are not in California) noncompetes are viewed with disfavor. That's because they limit the ability of former employees to find jobs, and are viewed as a type of restraint of trade by the judges who are usually charged with enforcing the agreements. Courts will typically look for reasons to void noncompete agreements rather than enforce them. As a result, the smart employer drafts a noncompete that does not overreach, and does not create any more of an obstacle to future employment than is necessary to protect specific employer interests. Noncompete clauses that seek to restrict a former employee's ability to work anywhere, at any time, for any current or potential competitor or customer, are almost always struck down as being overbroad. The smarter course, as is clearly demonstrated in the Virginia case, is to draft the noncompete clause to limit a former employee from performing the same types of services for a competitor or customer that she performed for the former employer.

Regardless of the actual description of the limitation, the company must also be able to articulate the legitimate business interest justifying any type of noncompetition clause.

For purposes of enforceability, it's frequently best to provide a brief job description, or a limiting paragraph relating to job duties, so that a reviewing court has a clear picture of just how far the employer seeks to extend its reach with a former employee. The old adage that "less is more" is nowhere more true than in the drafting of these types of agreements.

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