Non-compete Agreements in North Carolina
How restrictive can a non-compete agreement be and still be enforceable? First, it's important to understand the purpose or goal in having an employee sign a non-compete agreement. For the protection of the employer, non-compete agreements address issues such as non-disclosure of an employer’s confidential information, non-solicitation of an employer’s employees and clients, and non-competition with the employer.
When considering the enforceability of a covenant not to compete, the court examines the reasonableness of its time and geographic restrictions, balancing the employees right to work against the legitimate business interests of the employer. In general, the courts disfavor non-compete agreements; but, they can be enforceable.
To be enforceable in North Carolina, a non-compete agreement must be 1) in writing; 2) part of an employment contract; 3) based on valuable consideration; 4) reasonable as to time and territory; and 5) designed to protect the employer's legitimate business interests. Often the question in non-compete cases is what constitutes a legitimate business interest of the employer. For instance, the protection of customer relations against misappropriation by a departing employee is a legitimate interest of an employer. Also, if an employee will be in personal contact with the employer's customers, or will be in a position to gain valuable information about the employer's customers, that is a legitimate business interest of the employer.
A non-compete covenant forbidding an employee from working in an identical position for a direct competitor of the employer likely will be enforceable. Also, the courts have found a one-year, two-state restriction against employment with a direct competitor to be reasonable and within a legitimate business interest of the employer.
However, the courts have found a two-year restriction against employment with “similar businesses” throughout the Southeast to be unreasonable. Moreover, the courts have held that one franchisee can't prevent an employee from competing with franchisees in other cities or states.
These are but a few examples illustrating the fine lines the courts draw when interpreting non-compete agreements. If you are in a situation where a non-compete agreement may affect your present or future employment, please feel free to contact me at (919) 573-1882.