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Non
Compete Agreements Issues
has been asked to verify the legality of non-compete
agreements. Two distinct questions were posed: are non
compete agreements legal and are there any standards that
must be followed when drafting a non-compete agreement? Issues
has learned that no Federal Statutes exist
concerning non-compete agreements. We have also learned
that non-compete agreements are totally invalid in
some states, (i.e.
Montana, Nevada, North Dakota, and Oklahoma) some
states consider
non
compete agreements invalid or in some case limited, (i.e.
California, Colorado, Florida, Hawaii, Louisiana, Oregon, South Dakota,
and Wisconsin.)
While the remaining states consider the covenant as being at
least partially valid. Partially valid means the less the
former employee is restricted, the more enforceable to
agreement. (Ex.
an agreement indicating an employee can never compete
against his former employer in any state will more than
likely be found invalid, yet a restriction of 1 year in an
immediate area will more than likely be found valid. A non
compete agreement may also have some issues that a court
would conclude were invalid, while other issues were deemed
to be valid.) In
general, a non-compete agreement should protect
the employees rights as much as it protects the
employers rights if it is expected to withstand litigation. (Note - Several States are enacting laws to protect broadcasters against non-compete agreements.) In
the 1999 New York Case: BDO
Seidman v. Hirschberg, 1999 N.Y. Int. 0082 (May 13, 1999) the following was
noted: The modern, prevailing common law standard of reasonableness for employee
agreements not to compete applies a three–pronged test. A restraint is
reasonable only if it: (1) is no greater than is required for the
protection of the legitimate interest of the employer, (2) does not
impose undue hardship on the employee, and (3) is not injurious to the public (
see, e.g., Technical Aid Corp. v Allen, 134 NH 1, 8, 591 A2d 262,
265–266;Blake, op. cit., at 648–649; Restatement [Second] of
Contracts § 188). A
violation of any prong renders the covenant invalid. Continued
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Traditionally,
provisions in non-compete agreements that have been enforced
by American courts are intently adapted provisions intended
to protect only legitimate employer interest.
Unenforceable
covenants would sever common law aversion to limiting a
person's ability to earn a living or prohibit legitimate
competition. A
non-compete agreement must be reasonably and clearly limited both ...
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in time and
geography. Some courts have found a period of 18-months to be reasonable. The
geographical area must coincide with the exact area in which an employee had
business contacts during his employment. In other words, if a company does
business within an entire state, but the specific employee worked in only one
county, the employer cannot require a non-compete throughout the entire state.
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