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Two tips to help enforce a noncompete agreement

On Behalf of | Dec 13, 2021 | Corporate Litigation

Noncompete agreements are powerful and important legal tools that help protect a business’ intellectual property. Not all employees will follow the rules of these agreements. As a result, it is not uncommon for these documents to face a challenge. Businesses must draft these documents within the bounds of the law and be prepared to enforce the contract in order for it to provide any real protection.

To make matters even more difficult for businesses, regulators and courts often attack these documents as unfair to the employee. As such, it is important for business leaders to take steps to better ensure their agreements are enforceable in the event of a challenge.

First, draft a strong noncompete agreement

The best way to ensure the noncompete withstands a challenge is to draft a strong agreement in the first place. Courts generally prefer agreements that are reasonable in their scope, particularly when it comes to the geographic limitations and time period of the restriction.

An agreement that is used for all employees and covers the entire country for five years is unlikely to survive a challenge. In contrast, one that applies to higher level employees, is narrow in its geographic scope and lasts for one or two years is more likely to find success. Businesses that would like noncompetes for all of their employees could still do so but may find better success if they tailor the agreements to each level of employee. This could mean drafting agreements with less restrictions for lower-level employees compared to their higher-level counterparts.

Also, like any contract, the courts generally require consideration in exchange for the employee agreeing to the noncompete. A failure to provide adequate consideration could invalidate the noncompete. Stating an employee must sign the noncompete or face termination may invalidate the agreement but tying the noncompete to an offered promotion or bonus could suffice to meet the court’s consideration expectation.

Second, exercise the agreement

As noted above, a noncompete agreement is most useful if the employer has an actionable plan to use the contract to protect its interests, if needed. This could include a plan to request a court ordered injunction to stop the employee’s actions as well as a damage award to make up for any lost funds.

It is important to keep state law in mind when looking to enforce the noncompete agreement. In Delaware, for example, the court generally views restrictive covenants through a contractual lens. This often means the court enforces these documents as long as they are reasonable.

Fortunately for businesses, even unreasonable agreements could offer some protection — at least in part. This is because state law generally allows the court to exercise “judicial blue-pencil” to adjust any terms of the agreement that are unreasonable instead of requiring the court to void the agreement in its entirety. In Delaware Express Shuttle v. Older the court held that the noncompete’s three-year time limit was not reasonable. Instead of voiding the contract, the court changed to a “more reasonable two-year duration.”