Two-Minute Legal Clinic: Non-Competes From a Business Standpoint

In this Two-Minute Legal Clinic, Scott Levine takes on a question clients ask often: are non-compete agreements enforceable? He answers it first from a business standpoint, before getting to the legal one.

It’s very common for us to get asked, “Are non-compete agreements enforceable?”

Before we get to whether they’re enforceable from a legal standpoint, let’s talk about it from a practical standpoint.

Say you’re an employer and you’ve just hired a new salesperson. Maybe it was a stretch to hire this person from a business standpoint, but you’re excited to have them on your staff. They come with a lot of experience, a lot of connections in the industry, and maybe even relationships with potential customers.

Then you get a letter from that employee’s former employer. It says, “Just in case you weren’t aware, the person you just hired has an agreement with us that says he won’t take our customers and he won’t solicit our employees.” And maybe it also says that he won’t take our confidential information. The letter concludes: “It’s impossible for us to believe that our employee could work for your company without interfering with our contract with him. If you don’t terminate this employee, we’re going to take legal action against both you and your new employee.”

What are you going to do? Litigate? That’s a $10-15k decision. Do you have that in your budget? You could end up paying these fees and damages to the prior employer. Is this employee worth the expense? The risk?

So before we even get to whether the agreement is enforceable from a legal standpoint, there’s a business decision to be made based purely on the economics. If you’re a small company and the new hire was a stretch to add to your payroll, you may not be in a position to take on the cost of defending the lawsuit. You also face the risks of the damage you may cause to the prior employer.

Is the agreement enforceable? In most instances, our experience is that we never get to that analysis. The question is really whether everyone has the intention and wherewithal to defend it.

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