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Rhode Island Legal Blog

Monday, May 18, 2015

Are Non-Compete Agreements Appropriate For My Business?

The aim of non-compete agreements is to bar departing employees from working for your business competitors or from starting a competing business. These agreements used to be reserved for high-level employees or people working in certain fields who had access to sensitive information. While non-compete agreements are becoming more common, they are only enforceable to a limited degree and in some states not enforceable at all.

In considering whether a non-compete agreement can be enforced, courts generally examine whether there is a legitimate business interest at stake and whether the agreement is narrowly crafted to protect that interest. Courts tend to disfavor restrictive covenants such as non-compete agreements because it limits commerce and can prevent an individual from earning a livelihood. Here are a few factors to consider when looking to implement a non-compete:

  • What is unique about my business? If there is something about your business that sets it apart from its competitors - a product, a process, a method of doing business - a non-compete agreement could protect your advantage. It might also be wise to consider other protections such as patents.

  • Over what area would I need a non-compete to apply? Would employees be barred from working at a competing business across the street? In the same city? Within 50 miles? Within the same state? The larger the radius, the less likely a court is to enforce it.

  • To which companies would a non-compete need to apply? Are your employees going to be able to get jobs in your field if they leave your company, or would your agreement make them essentially unemployable? Courts typically frown on agreements that leave people completely out of work.

  • How long would a non-compete need to last? The shorter the time an employee is restricted by the agreement, the more likely the court is to find the restriction reasonable.

  • Under what circumstances would the non-compete kick in? If an employee is fired, are they going to face the same restrictions as an employee voluntarily leaving your employ?

When considering any agreement with your employees, including restrictive covenants such as non-compete agreements, it is important to consult an experienced business law or employment law attorney who can properly advise you and help you craft an agreement that is likely to be enforceable.


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