Non-Compete Agreements

In general, courts in most states look with disfavor upon non-compete agreements and may choose to enforce them only when there is evidence that the provisions of the agreement are fair and reasonable under the circumstances.

In Alabama, for example, non-competes are unenforceable against professionals such as accountants, doctors, and lawyers. In Georgia, if any aspect of a non-compete agreement is determined to be invalid, the entire provision will usually be deemed null and void. In California, non-competition agreements are illegal and not enforceable in most instances, the major exception being in conjunction with the sale of a business, where the seller agrees not to compete with the buyer.

Although the precise outlines of what is considered fair and reasonable vary from state to state, in general, evidence that the agreement is fair and reasonable typically includes such things as the equality of the bargaining power of the parties; whether the agreement is reasonably necessary to protect the business’ legitimate business interests; whether the agreement prevents the party signing it from making a living in its, his, or her chosen occupation (that is, what activities are allowed after signing the non-compete?); whether the party who is restricted has been adequately compensated for signing the agreement (or, in legal terms, whether the consideration for the contract is sufficient); and the scope of the time and place limitations.

With regard to the last two factors, time and place, it may seem tempting to fill out the form with the most expansive time and geographic limits. Doing so, however, will make the agreement more likely to be struck down by a court as overbroad and therefore unreasonable and unenforceable. Is it therefore often the better policy to limit competition only so far in time and place as is necessary to protect the reasonably foreseeable business interests of the business (referred to as the Company in the agreement).

The geographic parameters will vary depending on the nature of business; a radius of a few miles around a pizza parlor may be overbroad, while an entire metropolitan area may be allowed in more specialized fields. Specifying an entire state or country, except in rare circumstances, would be counterproductive.

Note that although the form recites that, “The Restricted Party agrees that the restrictions in this Agreement are reasonable as to length of time and geographical area and further that they are reasonably necessary for the protection of the Business of the Company, and the Restricted Party therefore irrevocably waives any objection to these terms,” this sentence is designed to make it more difficult for the other party (referred to as the Restricted Party in the Agreement) to later object to terms it, he, or she previously agreed to in writing, but this language may be disregarded or given minimal weight by any particular judge or jury.

In most states and in most instances, the rules will be applied more stringently against employers in an employer-employee context, and less so in other contexts.

Some businesses utilize non-compete agreements, even where the business using them knows there is little chance they’ll be enforceable if challenged, the reasoning being that they hope the party signing will be ignorant of the true level of enforceability of the agreement and will believe he or she is bound by it. This is, of course, a questionable tactic, because all contracts are supposed to be signed in good faith and, of course, if challenged, the agreement may not be enforceable under such a scenario, because judges and juries tend to find a way to rule against what they perceive to be the “bad guy”.

A notary public is not required for the execution of a non-competition agreement, but provides additional evidence that the agreement was signed by the Restricted Party if that party later claims it, he, or she didn’t sign the agreement, or wasn’t competent to sign it.

If you have any questions or concerns about whether to, or how to, utilize this form, or its validity in your jurisdiction or situation, retain a business attorney in your state for legal advice.