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Non-Compete Agreements: What You Need to Know

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Non-compete agreements are becoming something job seekers encounter far more often than was seen in the past. These agreements are often part of the hiring process, and can greatly impact an employee’s future career. If you are considering a new job that comes with a non-compete agreement, you should learn more about these agreements.

What is a Non-Compete Agreement?

A non-compete agreement is a contract between an employee and their employer that outlines the specifics of an employee’s ability to work in the industry should they quit their current job. Often, these agreements will lay out the restrictions on an employee leaving the company for a competing company, and amount of time these restrictions are in place. These agreements must be reasonable and cannot be for an extreme length of time, geographic area, or have restrictions that place too many restrictions on an employee’s ability to find a new career.

Non-Compete vs. Non-Disclosure

Some companies may ask employees to sign a non-compete agreement, but you may be asked to sign a non-disclosure agreement as well. Sometimes, non-disclosure agreements are used in place of non-compete agreements, but they can also be used to supplement a non-compete agreement. While non-compete agreements control the employee’s ability to work for competitors, non-disclosure agreements only control the employee’s ability to share information from their old job. This can include trade secrets, such as recipes or designs, or customer information. In states where a non-compete agreement is unenforceable, a non-disclosure agreement is one way for a company to protect themselves.

What are Reasonable Terms?

For non-compete agreements to be enforceable, the terms must be “reasonable.” If a non-compete agreement is broken and a lawsuit is filed, the court may dismiss the lawsuit on the grounds that the agreement was unreasonable. Too many restrictions can cause an agreement to be thrown out in court. Reasonable non-compete agreements are limited in:

  • Time: Shorter time limits are more enforceable. There typically aren’t specific guidelines, but agreements that are only for a year or two are more likely to be enforced.
  • Area: A limited geographical area is important for having a reasonable non-compete agreement. A reasonable geographical limit depends on the industry that the company is in.
  • Competition: Non-compete agreements that list a small list of competitors or prohibit the employee from starting a company in the employer’s precise field are more likely to be upheld.

Non-compete agreements limit an employee’s ability to make a living, so it is important that employees are only asked to sign an agreement if it is necessary to protect the company’s interests. Higher-level employees with access to company information are more likely candidates for a non-compete agreement than low-level employees who perform customer service or administrative work. It is less reasonable to ask low-level employees to sign a non-compete agreement.

Are Non-Compete Agreements Enforceable in Tennessee?

Some states do not enforce non-compete agreements at all, while some only enforce these agreements in certain circumstances. Tennessee only enforces non-compete agreements that are reasonable. Tennessee courts will examine non-compete agreements for certain factors, including:

  • The consideration given for the agreement
  • Danger to the employer without the agreement
  • Economic hardship of employee created by the agreement
  • Public interest
  • Scope of the restrictions, such as geographic location covered, time period of the restriction, and job description

There are certain instances that may make your non-compete agreement unenforceable. These can include:

  • If you worked for a company for a short time.
  • If your employer breached their contract with you, such as failing to pay overtime when earned, failing to pay commissions when due, and failing to pay promised bonuses.
  • If your employer directed you or pressured you to engage in illegal conduct, including sales fraud, environmental violations, and antitrust violations.

If an agreement is mildly unreasonable, Tennessee courts may mildly modify the agreement to be more reasonable. This is referred to as “blue penciling” the agreement.

How are Tennessee Non-Compete Agreements Handled?

There are a few situations that can occur when a company tries to enforce a non-compete agreement. The court will examine the agreement, and make a decision based on the reasonableness of the contract. If the contract is enforceable, the court will probably order an injunction to prohibit the employee from engaging in the activity outlined by the agreement. The court may also award monetary damages to compensate the company for lost business due to the unfair competition.

If the agreement is mildly unreasonable, the court can make modifications to make the terms fair. The court may also choose to enforce only part of the contract. If the agreement is oppressive and cannot be easily modified, the agreement is likely to be thrown out entirely. In these cases, the employee is free to pursue employment with competitors.

Get Help Understanding Your Non-Compete Agreement

If you’re being asked to sign a non-compete agreement to start a new position, you should consult an experienced Memphis employment attorney. Our team at Donati Law, PLLC can review your non-compete agreement and can advise you on your decision. Backed by more than 100 years of legal experience, our lawyers can help you protect your career and your rights. We are committed to providing attentive, personalized client service, to ensure that every case we handle receives the unique approach our clients deserve.

Contact our offices today for a consultation. Call (901) 209-5500.

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