How to Enforce A Non-Compete Agreement
A non-compete agreement (NCA) is meant to safeguard your company’s interests. Your employees sign an NCA so that they don’t use your proprietary business information to compete against you. This can take the shape of employees divulging information to a future employer or starting their own rival company.
If an employee does breach your NCA, your legal recourse varies dramatically depending on your jurisdiction and how well drafted your NCA is. Generally, there are two ways to ensure your NCA is enforced. The first way is preventative; draft an NCA with the appropriate scope so that the courts will honor it. The second is to understand the legal process of your jurisdiction (i.e. your state). For instance, in California, an NCA is void by law whereas in most other states an NCA is enforceable. This article will give you some tips on how to draft a solid NCA and how to enforce it in the event of a breach.
What to do before an NCA breach:
Laws on NCA vary from state to state, but there are some standard guidelines that most jurisdictions follow. Your NCA must:
- Be appropriate and necessary to protect your interests. In other words, there must be actual protectable interests at stake. Don’t get carried away and have your employees sign an NCA for everything under the sun; focus on what core of your business and what it is you are seeking to protect. Otherwise, the court will be reluctant to enforce a frivolous NCA.
- Fall within the scope of comparable industry standards. In following up with the first point, you cannot be overly broad in your NCA. Understandably, you don’t want your employees to become a threat to your business. However, if you end up trying to completely restrict their career movements, you will be looking at an NCA that the courts will not enforce.
- Be consistently enforced. Courts will often look to see if you’ve consistently enforced your NCA’s. If you’ve been lax with some employees versus others, the actual importance of your business interests becomes questionable. Therefore, do not selectively enforce these agreements!
- Have consideration. “Consideration” is a legal term that essentially means a benefit. Most jurisdictions require that an employee get a benefit from signing an NCA. An NCA is what is known as a restrictive covenant, which means it is a contract that restricts a party from doing something. However, a party cannot be restricted from doing something (e.g. working with a competitor immediately after leaving your company) without getting something in return. If you are about to hire someone new, be sure to have him sign the NCA BEFORE you officially hire him. That way his consideration is his new job. If you want an existing employee to sign an NCA, you will need to have another form of consideration. Existing employees who are being promoted or change positions within the company should also sign a new NCA with a new type of consideration.
- Outline your legal recourse. It is important to acknowledge in your NCA that your business interests are vitally important and any breach of the NCA will cause irreparable harm to your company. With that said, you should outline what legal actions you can take. You should entitle yourself to immediate injunctive relief, which means you can take action to swiftly stop the breaching party from continuing to breach. There are other important legal concepts to include in your NCA, including forum selection, jurisdictional choice of law and reimbursement of attorney’s fees. You should consult with an attorney when you draft your NCA to make sure you have all the provisions to protect your business.
What to do immediately following a breach:
1) Hire legal counsel to send a “cease and desist” letter.Show the other party you mean business by having an attorney contact the breaching employee with a “cease and desist letter.” This can usually be sent to both the breaching party as well as other parties involved (e.g. the new employer). This demand letter should summarize:
- The breaching party’s obligation under your NCA,
- The facts surrounding the breach,
- The harm your business suffered or will suffer,
- And the demand for specific actions and written assurances.
2) File a temporary restraining order or injunction. If the cease and desist tactic does not work, you may have no choice but to seek the help of the courts. You should definitely have an attorney help you expedite the process. You generally have a few options, but the best short-term solution is to seek a temporary restraining order or preliminary injunction while your case goes through the court system. Again, you should consult with legal counsel to discuss your best tactic to protect your business against a breaching party.