Non-compete agreements have become a standard clause in many employment contracts these days. While these agreements are vital to protecting a company’s trade secrets, customer lists and intellectual property, non-competes are also finding their way into employment contracts where they are simply not needed (menial jobs like working at a sandwich shop, for instance).
If you own a business and are or will be hiring employees, you should know that a contract is not necessarily enforceable just because an employee signed it. In the case of non-compete agreements, courts may rule them invalid if they don’t meet several criteria. One of these is that the limitations placed on the outgoing employee must be reasonable in scope, geography and time.
Many non-compete agreements go something like this: “Upon leaving our company, the employee will not work for a competing business within [x] miles of this company for a period of [x] months/years.” The point of such an agreement is to prevent employee poaching and the loss of valuable company interests. But the time and geographic restrictions must be considered reasonable in order to be enforceable.
A real-life example of this comes from Ohio (although similar examples occur here in Colorado). According to a recent news article, Nationwide Children’s Hospital in Columbus has a non-compete clause that many are calling too strict. It bans pediatric specialists from taking similar jobs for a period of two years and a within a 100-mile radius. The problem with these terms is that most of the state’s best pediatric clinics are located within that radius.
The terms of the agreements were leaked to a newspaper, which then solicited opinions from local employment attorneys. One noted that a two-year timeframe is not all that unusual, but the 100-mile geographic ban is. Another attorney said that when it comes to adult hospitals in that part of the state, a non-compete agreement may include a 20 to 25-mile ban and last for one year.
The specific terms of a non-compete agreement will depend on a number of factors, including where you live and what kind of work you do. But it is important to remember that a non-compete agreement is essentially useless if courts won’t enforce it. For this and other reasons, you should seek the help of an experienced business law attorney when drafting these important documents.