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How does “reasonableness” apply to non-compete agreements?

On Behalf of | Jul 7, 2021 | Noncompete Agreements

If you have company secrets to protect, it is reasonable to have new employees sign a non-compete agreement prior to beginning employment with your company. However, there are many unusual aspects to non-compete agreements which differentiate them from other contracts. The first of these being that this contract does not come into effect until after the employee has terminated employment with your company.

In order for your non-compete agreement to hold up in court, it must be reasonable. Historically, courts do not approve of non-competition agreements that limit a former employee’s right to earn a living. According to FindLaw, in order to ensure that your non-competition agreement is enforceable, you must make it reasonable in both duration and scope.

Reasonable duration

Unfortunately, there are no hard-and-fast rules as to what the courts consider “reasonable” for the duration of a non-compete agreement. You must simply examine the reasons why you wish to have your employees sign a non-compete agreement and decide what a reasonable scope of time for it is.

For instance, if you want your non-compete agreement to cover sensitive or confidential information, the duration of your non-compete agreement should only be as long as that information has real value to your company. Swearing somebody to secrecy forever is not reasonable.

Reasonable scope

“Scope” refers to the geographic area where the non-compete agreement applies. For instance, it is reasonable to prohibit a former employee from opening up a competing company within your direct geographic locale. However, it is not reasonable to prevent an employee from opening up a competing company anywhere in Texas.