Are Non-Compete Agreements Worth the Paper They Are Written On?
By Kevin M. Mosher • Oct 18, 2019
Someday I might write a book about the intersection of HR and law and in this hypothetical book (that will never be written) I foresee having a chapter. In that chapter I’m going to list all of the silly things that people repeat to me that lawyers have said, or they believe lawyers have said to them, the phrase “non-compete agreements aren’t worth the paper they’re written on” will be the foremost cliché covered. I’m not sure why the fiction persists, but I can only envision some bombastic attorney in the 1960s smoking a cigar while sipping scotch pontificating about how he can get anyone out of any contract and arrogantly stated that non-compete agreements aren’t worth the paper they’re written on. That’s essentially the visual of the phrase’s origin every time I hear someone repeat it.
Let’s be clear – we cannot simply dismiss all non-compete agreements as unenforceable (worthless). To say they are worthless is a drastic statement and can get companies and individuals in all sorts of legal and business difficulties. Outside very few situations, such as non-competes for lawyers or non-competes on employees in California, whether a non-compete is enforceable will come down to a number of factors including: the state of the law in the jurisdiction it’s trying to be enforced in, the language of the agreement, the circumstances of the employment arrangement, whether there is adequate consideration for the restrictions, the length of time of the restrictions, the geographic limitation imposed by the agreement, the industry, the company’s client base, the company’s marketing scope, the employee’s classification/pay, the impact on the employee sought to be restricted, the length of time the employee worked for the company… These are common elements we look at when determining whether a non-compete agreement is enforceable, but there could be others depending on how courts in the state you’re trying to enforce the agreement in view non-compete agreements.
One of the reasons we cannot readily dismiss the enforceability of non-compete agreements is because they are governed by state law and the law across the many states varies. Today, there is no federal law instructing employers on how to understand non-compete agreements. There is a general sense of hostility in most jurisdictions to non-compete agreements, but even so, they are routinely enforced by courts.
Perhaps that will change in the future.
This week the Senate reintroduced the Workforce Mobility Act. The proposed law is a bipartisan effort to curb the proliferation of non-compete agreements by banning them, except where businesses are being sold or a partnership is dissolving. Supporters of the bill view non-competes as stifling “wage growth, career advancement, innovation, and business creation.” A similar bill died in 2018, but with bi-partisan support there is an increased chance of passage. Until this bill or a similar one passes and becomes law, however, non-compete agreements are generally alive and well and should not be readily dismissed as worthless.
Questions about non-competes or need help drafting your own non-compete? Contact your Thompson Coe attorney or myHRgenius at (651) 389-5007 or www.thompsoncoe.com. For more information about the MyHRGenius subscription-based legal program call or go to www.myhrgenius.co.
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