Non-compete agreements

A non-compete agreement is an agreement typically used in an employment relationship, where the employee agrees that he or she will not “compete” against the employer, often even after the employment relationship ends.  Such agreements are becoming more common and are now used in a wide variety of fields, as are their cousins: the non-disclosure/confidentiality agreement and the non-solicitation agreement.  What are these agreements and are they legally binding?

In Idaho, non-compete agreements are “disfavored,” as a matter of public policy.  Although non-compete agreements can be enforced, they are construed against the employer and in favor of the employee.  And the non-compete must be no more restrictive than is necessary to protect the legitimate business interests of the employer.  Importantly, merely protecting against ordinary competition is not a legitimate business interest — there must be something more than just that the employer wants to limit competition in general.

So what sorts of business interests are “legitimate?”  One legitimate interest is for the employer to prevent the employee from exploiting customer information and knowledge that the employee only knows because of his employment with the company.  So if the company has a client list or customer information that can reasonably be considered confidential, the company can prevent the employee from making use of that information for a period of time following termination of employment.  This is the usual purpose of a non-solicitation agreement — to prevent the employee from “poaching” clients from the employer.

A non-compete could be appropriate where the employee is the “face” or “voice” of the company within a specific market.  For example, a famous radio DJ could be prohibited from moving to another radio station broadcasting in the same market for a period of time.  However, such restrictions must be reasonable (read: “narrowly tailored”) as to the geographic area, duration, and scope of activity.  There are no hard and fast rules as to what is “reasonable” — it depends on the particular business and the specific clause — however, an employer wanting to use a non-compete would be wise to not over-reach in the terms of their agreement.  The employer should narrowly define the interest it seeks to protect, and prepare a limited agreement to protect that interest.

Note that non-compete agreements that result from the sale of a business are allowed to be much more broad.


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