Restrictive Covenants: Non-Competes

Non-competes have been a hot topic of late with the FTC and President Biden taking a hard line to try and significantly limit and/or eliminate their usage.  They apply to employees and/or formers owners of a business.  For today’s purposes, we will be focusing on non-competes for employees.  Below are some of the key considerations when drafting a reasonable and enforceable non-compete:
What does it prevent a former employee from doing?

• Taking and using company trade secrets & confidential information
• Taking company clients, both existing or prospective
• Using any specialized training provided by their former employer to compete

What are the typical restrictions on the former employee?

• The former employee cannot go to a competitor company
• The former employee cannot start a competitor company that offers the same products or services

• The former employee cannot recruit former colleagues to join the competitor business

Is it enforceable (i.e, what do Courts look at)?

• Does it protect your legitimate businesses interest?
• Is the time restriction reasonable?
• Is the geographic restriction reasonable?
• Was the employee provided some type of consideration in exchange for the non-compete?

The above items are high level points that should be considered when implementing non-compete agreements with your employees.  However, remember there is a very real movement at both the State and Federal level to significantly limit their application.  If you have questions about their viability and/or enforceability, please make sure you consult with your professional business advisors.
Below are some good articles that can provide more insight:

• How the FTC’s noncompete ban could apply to nonprofit hospitals | Modern Healthcare
• Non Competes Agreements and Antitrust Anticompetitive Behavior (natlawreview.com)
• Investment Group Calls On FTC to Exempt Execs From Non-Compete Ban | PLANADVISER
• Michigan Chamber urges FTC not to ban non-compete agreements | Crain’s Detroit Business (crainsdetroit.com)
• Texas lawyers discuss FTC’s proposed noncompete ban – Dallas Business Journal (bizjournals.com)
• UK Follows US FTC Proposal and Issues its Own Non-compete Proposals | Littler Mendelson P.C.