A large part of my law practice is employment law. I represent Idaho employees and employers in many types of cases. An issue that comes up frequently is the enforceability of non-compete agreements. Non-compete agreements are now commonplace in all types of businesses and they are not going away. Many employers seek to protect their intellectual property, methods of conducting business, and client lists by having their “key employees” sign non-compete and/or non-solicit agreements. Employees (whether newly hired or tenured) have almost zero bargaining power when an employer demands they sign a non-compete agreement. No additional compensation or consideration is necessary for an employer to require an employee to sign a non-compete.
Unfortunately, most employees when faced with the prospect of losing their job if they decline to sign a non-compete agreement, simply sign it and forget about it. That is, until they decide (sometimes years later) they want to go work for another employer, or for themselves, in the same industry. I have had many clients tell me they just figured they would “find a way out of it later” or they ask me “are these really enforceable?” The short answer is yes they are very much enforceable, so long as they are reasonable.
I routinely assist employees in this situation, i.e., where they want to leave their employment after signing a non-compete agreement , but want to continue to work in the same industry and often in a similar geographic region. When this situation arises, the employee must determine (a) is the agreement likely enforceable as written and (b) will the employee's proposed course of action be viewed as a violation of the agreement.
The first important question when determining whether a non-compete agreement is enforceable is whether the employee meets the definition of a “key employee.” A “key employer” is defined as “those employees…who, by reason of the employer's investment of time, money, trust, exposure to the public, or exposure to technologies, intellectual property, business plans, business processes and methods of operation, customers, vendors or other business relationships during the course of employment, have gained a high level of inside knowledge, influence, credibility, notoriety, fame, reputation or public persona as a representative or spokesperson of the employer, and as a result, have the ability to harm or threaten an employer's legitimate business interests.”
Further, those employees among the highest paid five percent (5%) of the employer's employees are presumed to be “key employees.” Additionally, if the court finds a key employee breached the non-compete agreement, the law imposes a rebuttable presumption of irreparable harm to the employer. The law then imposes upon the employee the impossible burden of proving not just that the employee's actions did not irreparably harm the employer, but rather the employee must prove he/she “has no ability to adversely affect the employer's legitimate business interests.”
Assuming an employee meets the definition of a “key employee,” an Idaho court will enforce a non-compete agreement as long as it is “reasonable” with respect to duration, geographic scope and the scope of the activities being restrained. What is considered reasonable is really a case-by-case question, but Idaho law has provided some presumptions of reasonableness. As for the duration of the non-compete, Idaho law provides that a term of eighteen (18) months or less for any non-compete agreement will be presumed reasonable. This does not mean a longer term will be ruled unreasonable, it just means the employer would not be entitled to a presumption of reasonableness.
As to the type of employment being restricted, Idaho law provides that an agreement is presumed reasonable as to scope of activities being restricted if it is “limited to the type of employment or line of business conducted by the key employee or key independent contractor while working for the employer.” The analysis of this factor will depend heavily on the language used in the agreement. For example, the analysis is very different if the type of employment is described as “sales” vs. “agricultural seed sales.”
As for geographic scope, Idaho law provides that an agreement is reasonable if it is restricted to the geographic areas in which the key employee “provided services or had a significant presence or influence.” As you can imagine, the phrase “significant presence or influence” is ripe for interpretation and argument, based on the facts pertinent to the employee's tenure with the employer. Often, a large employer will claim to have a nationwide presence, but typically any one employee within a company cannot be said to have a nationwide “significant presence or influence.” This will almost always be much more limited in scope.
In such instances where an agreement overreaches either in duration, scope of activities restricted, or geographic scope, the court will typically not declare the entire agreement invalid or enforceable. Rather, the court will amend (sometimes called “blue-pencil”) the agreement to bring it within the scope of reasonableness. For example, a court may find a nationwide restriction unenforceable, but then may determine which geographic areas the employee had most contacts with and had the most influence over, then amend the agreement's geographic scope to only apply to those areas.
Of course, I always caution my clients that just because I can identify flaws in a non-compete agreement, or believe it likely exceeds the prescribed bounds of reasonableness, that does not mean you will not be sued by your ex-employer. Your ex-employer may become vindictive or they may simply believe your actions are in fact violating the agreement. In these instances, you may be sued to enjoin you from competing. The ensuing litigation would then determine whether the agreement would be enforced.
Suffice to say, if you are presented with and asked to sign a non-compete agreement that restricts your future ability to work in a certain industry, for a certain period of time, and within a certain geographic area, you should speak with an attorney about the ramifications of signing such an agreement. If you are an employer looking to protect your legitimate business interests, there are ways to construct non-compete agreements that can achieve this, without unfairly and unlawfully restricting your employees' future employment opportunities.