Drafting Enforceable Confidentiality, Non-Compete, And Non-Solicitation Agreements

There are a lot of misconceptions about how noncompete and nonsolicitation agreements work. This checklist is to help you avoid the common mistakes.

• Begin by making sure that your key customers and their information have trade secret, proprietary, or nonsolicitation status in your company.

• Bigger is not better. The scope of the agreement must be reasonable. Courts typically look to:

o Whether the restraint is reasonably necessary to protect the employer’s business;

o The effect of the restraint on the employee; and

o The effect of enforcement on public interest.

• These agreements are not a onesizefitsall proposition. They must be reasonable in light of the nature of the employee’s job and the employer’s protectable interest, and they must meet the standards of your jurisdiction.

• Don’t rely on a court to rewrite any objectionable material out of the agreement and enforce the rest. The extent to which courts do this varies greatly and some states prohibit courts from doing it at all.

• The agreement needs to be supported by consideration. Continued employment generally does not work. Get the employee to sign the agreement when hired, or to provide something additional of value.

• An employer’s ability to assign these agreements is limited in many states. It has to be expressly permitted in the original agreement, or the employee has to consent to the assignment. It is very difficult to get former employees to agree to assign.

• An employer has to do more than just say it has a protectable interest. The interest must exist independent of the agreement. There is no protectable interest in the employee’s general job knowledge. Typical legitimate interests include trade secrets and customer goodwill.

• Actually paying the employee not to compete is an excellent idea.

• Verify the employee knows what his or her obligations are under the noncompete.

• Use language to the effect that no obligation under the noncompete or nonsolicit will interfere with any other obligation that the employee has.