In an increasingly competitive business environment the use of non–competition agreements has become commonplace. Employers and employees tend to resort to cookie-cutter agreements which are not narrowly tailored to fit the particular employment relationship at issue. As a consequence, employment lawyers hear employers complaining that the non-competition agreement did not afford them as much protection as they would have liked. On the other hand, employees sign the same non-competition agreements without giving any thought to their scope and duration thereby, in many cases, effectively negating their ability to perform their chosen line of work.
The tried-and-true rule of thumb for non-competition agreements has been that they must be of reasonable duration and narrowly tailored geographically. The shorthand term is reasonable duration and scope. Essentially, since courts do not favor these agreements, given their propensity to stop people from gainful employment, businesses cannot overreach and impose terms that are greater than needed to protect their legitimate business interests. Under the tried and true rule of thumb, a small company operating in Aberdeen Washington, with the clientele within 100 mile radius was not permitted to expand the scope of the non-competition agreement nationwide for the next hundred years.
As with everything, the tried-and-true rule of thumb has gone by the wayside due to technology. A prime example of this is the recent decision of the Mississippi Court of Appeals in Timber Lake Foods, Inc. vs. Stephanie Estess.In that case, the employer sought enforcement of a noncompetition agreement that was two years in duration and prohibited any employment within the 250 mile geographical radius. In analyzing whether the scope of the noncompetition agreement was reasonable, the court examined whether the imposition of a 250 mile geographical restriction was arbitrary. In so doing, it concluded that based on the nature of the work performed by the employee, specifically that the employee could perform her job through the use of a computer and telephone from anywhere in the country, that the restriction was not excessive. In so holding, the court cited to several decisions from other jurisdictions in which courts have held that technological advances have significantly impacted the courts’ view of the concept of geographical reasonableness.
Don’t Get Lost in Love.
Don’t enter into long-term commitments without first obtaining the advice of independent legal counsel. Employers and employees are both guilty of not considering the possible worst-case scenarios that can occur when an employment relationship falls apart. Understandably, in any employment relationship there is what can be referred to as the honeymoon phase. As with any relationship, things always look wonderful when you are in love and everyone is optimistic, happy, and just plain content. It is after the honeymoon phase ends that the employer and employee begin to view things in a different light. Unfortunately, by that time all the important documents have been signed and neither party is willing to compromise.Employees suddenly realize that they never considered what would happen in the event of a lay-off, termination, merger, or the availability of a better paying position. Employers, who view noncompetition agreements as mere “boilerplate”, find that due to technological advances they have not fully considered the geographical scope of their agreements thus allowing an employee to effectively compete in your market while working outside of the geographical restriction. In each circumstance you have unhappy campers who are forced to go to court to protect their interests.
Time in Breach Should Not Count.
Lawyers drafting noncompetition agreements should also be mindful that litigation involving these agreements can be time-consuming and costly. As a result, it is always important to toll the duration of the noncompetition agreement for all periods of time that the employee is in breach of the same. In the Timber Lake Foods case, the court was unable to issue an injunction enforcing the noncompetition agreement because by the time the matter reached the appellate court level the two-year time duration had expired. That is effectively, winning the battle but losing the war. Employers drafting these types of agreements should also make sure that, given the costly nature of this litigation, that noncompetition agreements contained the shifting mechanisms.