Noncompete agreements can be a major source of anxiety for a worker who is contemplating a transition. The agreements limit a worker's future employment prospects and protect the employer from potentially losing business to a former employee. Noncompete clauses are generally disfavored, and are practically banned in some states, such as California and Massachussetts- and everywhere else they should be narrowly tailored to be limited in restricted activities, time, and geographic scope.
Under North Carolina law, to be valid, a noncompete agreement must be: 1) in writing; 2) reasonable as to time and territory (no more than reasonably necessary to protect the business); 3) made a part of the employment contract; 4) based on valuable consideration; and 5) designed to protect a legitimate business interest of the employer. Further, they must not impose unreasonable hardship on the employee.
Analysis of the enforceability of noncompetes is a factually-specific exercise, and depends on the language of the agreement as well as the timing of when it was entered. For instance, a noncompete signed by a worker after he began working is not enforceable unless the employer provided consideration (compensation, stock options, etc) in addition to merely continued employment. Likewise, noncompete agreements that are too broad in limiting a worker's ability to obtain future employment have been held to be unenforceable.
In the event of an alleged breach of a noncompete clause in an employment contract, the employer will usually seek an injunction to prevent the worker from continuing the breach. In order to obtain immediate injunctive relief, a party must convince the court that they are likely to ultimately win the case on the merits and that they will suffer irreparable harm if the relief is not granted.
North Carolina should consider banning noncompete agreements. Contrary to arguments popular in the business community, these agreements to not help to stimulate business activity. Other states have recognized that business interests are adequately protected by trade secret laws which prohibit use or disclosure of sensitive information, and noncompete agreements prevent the freeflow of a mobile workforce such as the one that has made Silicone Valley the epicenter of high-tech innovation. As mentioned above, these agreements create uncertainty in the labor market, inhibit workers' freedom to seek gainful employment in their chosen field, and can be very expensive to litigate.
If you would like to consult a North Carolina employment law attorney about a noncompete agreement call Edelstein & Payne or fill out the contact form on our Employment Law page.