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LITIGATION OVER NONCOMPETE AGREEMENTS

As stated in 54A Am. Jur. 2d Monopolies and Restraints of Trade § 880 (2009), Covenants not to compete with one's employer after the termination of employment are generally enforceable where they are reasonable, meet contractual prerequisites, and, if regulated by statute, are in compliance with statutory requirements.

In the majority of jurisdictions, postemployment covenants not to compete, being in partial restraint of trade, are not favored by the law, but, unless the facts and circumstances indicate bad faith on the part of the employer, such covenants are usually enforceable if they are reasonably necessary to protect an employer's legitimate business interests, without imposing undue hardship on the employee. To be enforceable, they may not adversely affect the public interest either. Thus, a postemployment noncompetition covenant is enforceable only if its terms are reasonable with respect to the interests of the employer, the employee, and the public. This three-part inquiry involves consideration of whether the postemployment restrictive covenant is reasonable with respect to time, territory, and the capacity in which the employee is prohibited from competing.

A restraint will be upheld if, considering the parties' situations and the circumstances under which the covenant was made, the restraint appears to have been for a just and honest purpose. (Footnotes omitted.) See also Elizabeth Williams, Cause of Action to Enforce Anticompetition Covenant in Employment Contract, 11 Causes of Action 2d 375 (2009).

The employer that was engaged in the distribution of novelty items and sought to impose several different types of restrictive covenants on a former salesperson had only mixed success. Star Direct, Inc. v. Dal Pra, 2009 WI 76, 767 N.W.2d 898 (2009). The employment contract's unenforceable business clause, which prohibited the former employee from engaging in competitive or substantially similar business activities in the former employee's former sales territory, was divisible from the valid customer clause, which prohibited the former employee from soliciting the former employer's current and certain former customers, and from a third provision, also valid, referred to as a confidentiality clause. Under that clause, for 24 months following an employee's termination, the employee was barred from using or disclosing "any information or knowledge, known, disclosed or otherwise obtained by him during his employment." 767 N.W.2d at 903. Thus, the customer and confidentiality clauses were enforceable, although there was substantial overlap among all three clauses; the interests protected by the enforceable clauses were legitimate and separate interests, and the clauses were not textually linked, intertwined, or mutually entangled in any way. Id. at 917.

In Paramount Tax & Accounting, LLC v. H&R Block E. Enters., Inc., 2009 WL 2394796 (Ga. Ct. App. 2009), the fatal flaw in the noncompete clause was its excessive territorial reach: "Indeed, on its face, this language prevents Squire from accepting employment anywhere in the United States, if her prospective employer engages in the preparation and electronic filing of tax returns and also either has an office or advertises in, or within ten miles of, Block's Gainesville District." Id. at 5. For an extensive collection of cases on this form of restrictive covenant in employment, see C.T. Dreschler, Annotation, Enforceability of Restrictive Covenant, Ancillary to Employment Contract, as Affected by Territorial Extent of Restriction, 43 A.L.R.2d 94 (1955 & Supp. 2009).