In today’s hyper-competitive market, employers face the constant challenge of retaining clients and customers. This challenge is all the more daunting when former employees, armed with the training and experience provided by their former employer, compete for business in the same market or attempt to solicit work from clients for whom they previously provided services.
To combat this challenge, and as a proactive measure, an employer may require employees to sign a non-compete or non-solicitation agreement or make such an agreement part of an overall employment contract. These types of agreements or clauses are those which seek to prohibit a former employee from competing with their former employer or from soliciting work from former clients.
Courts typically view non-compete agreements and clauses as restraints of trade, meaning that they restrict free market competition, and, if considered unreasonable, are not enforceable.
However, if an employer can establish that a non-compete agreement or clause satisfies the following criteria, then it may be considered reasonable and, as a result, enforceable:
Generally speaking, an employer cannot use a non-compete agreement or clause to protect its competitive position. Only an employer’s legitimate proprietary interests can be protected using such an agreement. In addition, these agreements cannot be overly broad or ambiguous. Therefore, it is challenging to draft a non-compete agreement or clause that is both reasonable and sufficiently safeguards an employer’s interests.