Restrictive Covenants, Including Non-compete Agreements And Non-solicitation Agreements
More and more employers are trying to restrict employees in their post-employment activities by demanding that employees execute restrictive covenants, including non-compete agreements and non-solicitation agreements. Bad advice floats around the internet, claiming that non-compete agreements are unenforceable. The truth is, in the vast majority of jurisdictions, non-compete agreements are perfectly legal and quite powerful. However, there are many ways to challenge them.
First, some background, restrictive covenants are designed to prohibit an employee from competing with their former employer following their termination. These agreements vary wildly depending on the type of employment, state laws, and the employer’s demands. The covenants are typically designed to act in the employer’s best interest and can negatively affect your future job prospects.
To understand the effects of restrictive covenants, it’s helpful first to understand the different types of covenants, which include:
- Non-Compete Provisions – Prohibit an employee from engaging in or performing work for a competing business for a specific time period in a geographic area or market. These are typically considered the most restrictive covenant;
- Non-Solicitation Provisions – Prohibit an employee from soliciting business from a company’s current, prior, or prospective customers for a specific time period;
- Non-Solicitation of Employees Provisions – Prohibit the solicitation of a company’s employees and are designed to protect a company’s investment in training and development; and
- Confidentiality Provisions – Prohibit the disclosure and use of confidential information to a company or its clients.
These provisions can be included in employment agreements, shareholder agreements, and severance agreements. Employers can introduce a restrictive covenant during any stage of employment; therefore, it’s essential to understand what restrictions can be enforced.
Enforcement of restrictive covenants
Each state regulates the legality and enforcement of restrictive covenants differently. Some prohibit nearly all non-competes, while others allow companies to take complete liberty regarding implementing these agreements.
Most states will enforce a restrictive covenant as long as it meets a “reasonableness” rule. Some factors that support a “reasonable” finding include when the covenant is:
- necessary to protect the company’s legitimate business interest;
- reasonable in geographic scope, coinciding with the location of a majority of the employer’s clients;
- reasonable in duration, typically only enforceable for up to one year;
- not unreasonably burdensome to the employee; and
- not harmful to the public at large.
When bringing a suit calling for the enforcement of a restrictive covenant, an employer must be able to prove that the employee’s actions damaged a legitimate business interest. These interests include things like:
- trade secrets;
- proprietary and confidential information;
- customer relationships and contact information;
- customer business operations; and
- extraordinary or specialized employee training.
Generally, the greater the resources and effort expended by an employer to develop these business interests, the more likely a court is to enforce a restrictive covenant. In states that utilize the “reasonableness” rule or similar guidelines, courts engage in a case-by-case analysis of the facts. This analysis means that other variables, including the employee’s position, industry, departure circumstances, and length of employment, play a role in deciding the agreement’s enforcement.
Courts can issue injunctions to force you from engaging in certain employment activities. This power is commonly referred to as injunctive relief. In the employment law field, it’s typically invoked due to alleged violations of employment agreements. In these cases, employers are almost always the petitioner, seeking an injunction against a current or former employee. Injunctions can be used to:
- stop a property nuisance;
- prevent a breach of contract;
- enforce a non-compete agreement;
- enforce a non-disclosure agreement;
- enforce a non-solicitation agreement; and
- return a specific item or property.
Companies often seek injunctions to prevent former employees from competing with them. Typically, an employer must prove that an employee has violated some legal obligation for a court to issue an injunction. In addition, employers must show that such violations can cause or have already caused irreparable injury to a legitimate business interest.
Can Injunctions Be Restricted?
Restrictions on injunctions vary wildly from state to state and court to court. Typically, injunctions can only prohibit an employee from engaging in a specified business practice. The injunction type is generally tied to the company’s risk of harm or damage. In federal court, Federal Rule of Civil Procedure 65 lists the types of injunctive relief available to companies:
- Temporary Restraining Orders – A short-term injunction issued to prevent immediate, irreparable, or significant property damage. Can be ordered almost immediately without written or oral notice to the adverse party;
- Preliminary Injunctions – Temporarily forbid an individual or entity from engaging in a particular behavior or activity while a dispute is litigated. Can only be ordered on written notice to the adverse party; and
- Permanent Injunctions – Permanently prohibit an individual or entity from engaging in particular behavior or activity.
If a court orders an injunction, it must meet specific standards to ensure that it is not too burdensome. Under Rule 65, every order by the court granting an injunction or temporary restraining order must contain:
- the reasoning as to why it was issued;
- the acts to be restrained or required;
- a description of said acts in reasonable detail, without referring to a complaint or any other document; and
- expressly state which parties are bound.
In addition to the guidelines above, temporary restraining orders issued without notice must also include other content like the date and hour it was issued, the irreparable damage caused thus far, and reasoning to support the lack of notice. The order goes into effect immediately after filing for up to 14 days. Upon the 14-day expiration, the court can elect to extend it for a reasonable time period if it deems necessary to prevent further damage. The respondent can also consent to an extension if requested.
The party requesting an injunction must usually pay a security to the court before the court issues the order. The court determines the amount based on the damages sustained by the moving party. If the court finds that the injunction was wrongly requested, it may issue the security as compensation to the wronged party.
How Can I Get An Injunction Lifted?
Courts often issue injunctions after only seeing the petitioner’s side of the story. However, you do have an opportunity to object to the injunction at a court hearing. In this hearing, you can seek the dismissal of the injunction by proving that the action in question does not cause irreparable damage to the company.
Regarding permanent injunctions, you can still file a motion to dissolve the injunction despite the “permanent” title. For this motion to be successful, you must prove that there has been a change in the injunction’s circumstances. The changed circumstances vary on a case-by-case basis but usually require the respondent to prove that their prohibited actions will no longer negatively impact. Ultimately, if the court decides not to lift the injunction, you can appeal the order to a higher court.
Here at Hoyer Law Group, PLLC, our employment attorneys can assist you in opposing injunctions and attempting to have permanent injunctions lifted so that they do not cause any more harm to you or your career. If you need any assistance in fighting injunctions or any employment matter, don’t hesitate to contact us online or call 888-943-1352.