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Non Compete Clause: Employment Contracts

>>AMY SUSAN: Whether you have a job or you’re currently looking for a job, it’s important for you to know a little bit about employment contracts so that you can make better decisions for your future career path. I’m joined here with the Labor Department’s General Counsel, Mike Pritchett, to shed light on that issue. So, Mike, to start this out, can you please explain what you mean when you say a non compete clause?

>>MIKE PRITCHETT: Well, sure. A non compete clause is pretty much just exactly what it sounds like. It’s an agreement, in this case, by an employee who has a job or is seeking a job with an employer where that employee says, “Once I leave the job, whether I’m fired, I leave on my own or what, I won’t compete with you. I won’t start my own competing business in your industry or I won’t go to work for one of your competitors.” Courts have had a difficult time dealing with non compete agreements because they have a conflict between two very important principles in the law. The first, the right to contract so that a business or individual can understand what’s going to happen, that there will be some stability; versus the general notion, a long-held notion, you shouldn’t restrain trade and when you get right down to it, non compete agreements are restraints of trade. But courts will enforce them in limited circumstances.

>>SUSAN: Does an employee have to sign it and what happens if they choose not to sign it?

>>PRITCHETT: Well no, of course, they don’t have to sign it. But there’s a down side to that. Missouri being an employment at will state, employers can put certain conditions on hiring employees and assuming we’ve got a valid kind of non compete clause, the employer can say “you sign it, or I won’t hire you”. Or even, “you sign this now, or I won’t continue to hire you.”

>>SUSAN: I understand this could be seen as burdensome for some employees so what should they really be looking out for when they review this type of language in their contract?

>>PRITCHETT: Well, courts say that they’re enforceable only when they’re reasonable and reasonable, like many things in the law, it depends on the circumstances. But what the courts look at, in particular, are is it reasonable in terms of the duration of the effectiveness of the non compete agreement and is it reasonable in terms of the geographic scope. How close do you have to be before the non compete agreement applies? For example, having a reasonable geographic scope, it probably is going to relate to the sphere of business of that particular employer. That employer, say an accountant, in a city and all the clients are in that city, probably a reasonable scope would be no competition within the scope of that city. If it’s a bigger kind of business that has statewide business, statewide geographic limit might be appropriate. There are very rare instances where worldwide and national geographic scope restrictions have been upheld. But again, those are international businesses, hotly competitive businesses. It’s more likely going to be more limited like to a city, or county, or maybe a radius of so many miles from the center of operations of the business. The other piece of that, the reasonable time limit, again, depends on the circumstances, two years seems to be pretty standard.

>>SUSAN: Can you provide any potential consequences that the employee could face if they breach the contract?

>>PRITCHETT: First thing, you’re probably going to see, if you’ve entered into an agreement and then you leave and you start competing somehow so you’re raiding your formal employer’s customers or you’re using some sort of trade secret, some confidential business information like a manufacturing process. You start doing that, or even if there’s a risk that you’re going to do it, the employer can file suit, the former employer can file suit in court and ask that you be enjoined, or stopped, from doing that and that can happen very quickly. They can seek an immediate temporary restraining order and then a preliminary injunction to stop it immediately if the former employer can prove the requirements to get one of those. And, eventually, once the courts had time to look at it and consider all the issue and if it decides that now, yes, in fact, that non compete agreement was appropriate, it’s enforceable, you can be stopped from competing, again, for the time length of the agreement and then the geographic region covered by the agreement.

>>SUSAN: Can the department do anything to assist individuals or employees if they have questions or concerns about this issue or can you direct them anywhere else?

>>PRITCHETT: This is something that the law has left pretty much between the parties, the employer and the employee, and it’s a matter of contract. Again, limited scope to deal with, but it doesn’t leave a role for the state as a general matter to interfere in any way.

>>SUSAN: Thank you, Mike, for joining us today and if you all have any questions, comments or concerns you can visit www.labor.mo.gov. Click on news and notices and then click on Labor Talk podcasts.