Avoiding Missteps in Crafting Non-Compete Agreements
Non-compete agreements have long been a useful tool for businesses looking to preserve proprietary information and institutional integrity. However, these agreements have become increasingly more important in an economy where companies are often competing for shrinking market shares.
Employers want non-compete agreements to have bite. However, if they are drafted too tightly the courts will inevitably strike them down. In determining whether a non-compete agreement is fair, the courts examine the reasonableness of time and geographic restrictions by balancing the substantial right of the employee to work with the employer’s right to protect its legitimate business interests. With this balancing act in mind, a lawyer must craft an agreement that protects the Employer’s interests, while avoiding the inclusion of restrictions that are broader than needed to protect the Employer’s business.
In a recent federal lawsuit, the U.S. District Court for the Eastern District of North Carolina undertook a comprehensive review of North Carolina law governing non-compete agreements. Their ruling reminds us of the importance of ensuring that only well-crafted non-compete clauses are included in employment contracts. In Clinical Staffing, Inc. v. Worldwide Travel Staffing, Ltd., the Court found that a non-compete provision contained in a nurse’s contract was unenforceable due to overly-broad restrictions. The case revolved around a nurse who resigned from staffing agency “Clinical” and went to work for a competitor “Worldwide,” that had recently won the staffing rights for a hospital previously staffed by Clinical. Clinical sued to enforce their non-compete agreement that stated in part: “I will not provide service to any Clinical client or individual who has received services under the direction of Clinical for a period of (6) six months from my termination date.”
The Court for the Eastern District found that the non-compete clause was unenforceable due to overly broad language prohibiting a former employee from providing any “service.” Clinical argued that the term “service” should be interpreted to mean nursing services, but the Court found the contract should be strictly construed against the party who drafted it. As a result, the Court applied the plain meaning of the term “service,” and found the restrictive language was so broad that it prevented former employees from performing any kind of service, even janitorial work.
Courts are traditionally not in favor of covenants restricting an employee in a capacity unrelated to the work they performed for the original Employer. Clinical could have avoided having their agreement struck down by taking time to make sure every term was well-defined and only as broad as necessary to ensure their interests were protected.
Cases such as the above serve as a reminder to Employers of the importance of crafting non-compete agreements that are only as restrictive as necessary to protect their business interests.
The attorneys of Young Moore’s Employment and Workers’ Compensation team have years of experience in crafting, and enforcing, non-compete agreements for North Carolina businesses. If you are looking to create an employment contract, or need help with enforcing an agreement, please contact us.