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Restrictive employment agreements such as non-compete and non-solicitation agreements are generally disfavored in the United States. Recent developments in several states demonstrate that you, as an employer, must ensure that such agreements are reasonable in scope and supported by consideration in order to be enforceable.
In Florida, non-compete and non-solicitation agreements are prohibited unless they protect “legitimate business interests.” These interests include, but are not limited to, trade secrets, valuable confidential business or professional information, substantial relationships with specific prospective or existing customers, patients, or clients, certain customer, patient, or client goodwill, and extraordinary or specialized training. In White v. Mederi Caretenders Visiting Services of Southeast Florida the Florida Supreme Court recently held that the referral sources cultivated by marketing representatives may constitute a protectable legitimate business interest sufficient to support a non-compete agreement. However, the court explained that the issue is a factual one requiring industry and context-specific proof.
This summer Nevada enacted a statute regulating non-compete agreements setting forth specific parameters for an enforceable agreement. Notably, the statute states that if an employee is terminated because of a reduction of force, reorganization, or similar restructuring, a non-compete agreement is only enforceable during the period in which the employer is paying the employee’s salary, benefits or equivalent compensation such as severance pay. Further, the statute allows courts to rewrite a non-compete in certain conditions relating to unreasonable restrictions, reversing exiting Nevada law. Note that other states may not allow the rewriting of contractual provisions by the courts, instead finding any legally unreasonable provision renders the complete contract unenforceable.
Applying Kentucky law, a court recently dismissed a suit by an employer seeking to enforce a non-compete agreement against an employee who had left to work for a competitor, finding that after the employee initially signed the agreement and received consideration for the signing, the employer did not provide additional consideration in subsequent years to renew the automatic rollover of the non-compete.
Ultimately, whether a non-compete or non-solicitation agreement will be enforced depends on each state’s – and each country’s – laws and regulations. Courts and legislatures regularly refine the requirements for enforcement. Ensure the protection of your company’s intellectual property by meeting with your Ally Law employment law group to review your company’s non-competition and non-solicitation agreements to assure they comport with the current state of the law wherever you do business. For more information about our services in this area, contact us at yourally@ally-law.com.
Click here for the complete article by Natalie M McLaughlin and Michael C Griffaton of Ally Law member Vorys Sater Seymour & Pease, LLP.
