5 Things Every Small Business Should Know about Noncompete Agreements

A noncompete agreement is an agreement an employer may ask an employee to sign as a condition of employment that limits the employee’s options upon termination of employment, such as prohibiting an employee from working for a competing business within a specified geographic area and time period. What happens when the employee fails to abide by the noncompete? Earlier this summer, Amazon sued a former employee to enforce a noncompete agreement. The former employee, Zoltan Szabadi, responded by arguing the Amazon agreement is excessive, too broad, and unenforcable.

Noncompetes are not just being used by giant tech companies like Amazon. Employers across a wide swath of industries seem to be showing an increasing interest in having employees sign noncompetition agreements. Last weekend’s Seattle Times included this pithy piece about noncompete agreements on the cover of the advertorial NWJobs section. Quoting Seattle employment attorney D. Jill Pugh, the article noted that while noncompetes are legal in Washington State, they are not always enforceable. What  makes a noncompete more likely to be enforced?

1. The agreement must be tailored in scope to include only information that is secret or proprietary.
2. The agreement must be limited to a certain time period. In the Seattle Times article, Pugh notes that courts generally consider agreements that restrict the employee’s activities for less than two years to have a reasonable time restriction.
3. Any geographic limitations imposed  on the employee by the agreement must also be reasonable. A hair salon owner may be able to restrict an employee from working across the street, but probably not across the state (and maybe not even across town).
4. Asking  current employees to sign a new noncompete agreement must include sufficient consideration – something more than just keeping their jobs.
5. While Independent contractors may be asked to sign confidentiality agreements or non
   solicitation agreements, a noncompete signed by an independent contractor is probably not going to be enforceable