Non-compete agreements (or covenants not to compete) can be very helpful to employers in many situations. The purpose of a non-compete agreement is to protect a company’s customer base. These contractual provisions are most often used in employment contracts and purchase agreements.
Non-compete agreements are very useful to new owners purchasing a preexisting business and its assets. They prevent former owners from starting a similar business and siphoning off customers. The non-compete agreement may also protect an employer when a key employee leaves and tries to work for a competing company.
The non-compete agreement restricts the ability of former employees, owners, or others to engage in a specific activity or industry for a set period of time within a certain geographical area. However, many companies make the mistake of creating one-size-fits-all non-compete agreements that will not likely survive when scrutinized by a court. In order for a non-compete agreement to be enforceable in North Carolina the agreement must be:
- In writing
- Entered into at the time of contract of employment or sale
- Based on valuable consideration (consideration is a legal term defined as something of value that makes a contract binding)
- Reasonable as to the time and territory in restriction (anything over two (2) years is usually struck down and the territory in question must be reasonably limited to your actual customer base)
- Fair to both parties
- Not against public policy
It is essential that your non-compete agreement is well-drafted and specific as possible. If a court finds that an agreement is overly broad in either geographic area or the description of the job/activity, it may engage in what is referred to as “blue penciling,” in which the court strikes out the overly broad term and allows the less restrictive application apply.
Want to incorporate non-compete agreements into your contracts? Call Harrison and Devins Law Firm and we’ll show you how!
* Things like money, materials, and promised performance are often used as consideration.