Legitimate Business Interest Supporting a Non Compete
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A non compete must be reasonably necessary to protect the employer's legitimate business interest. Many disputes about non compete agreements turn on whether the interest the employer is asserting is a legitimate business interest.
This is true whether or not your non compete is subject to the enforcement restrictions in the 2018 Non Compete Law (meaning whether or not you signed it on or after October 1, 2018). Legitimate business interests are generally limited to two categories. One involves trade secrets or confidential information. The second is protection of the employer's goodwill, usually with customers or prospective customers. Other interests which may be economically legitimate, such as retaining a key employee or depriving a competitor of someone with skills and experience, generally do not qualify as a reason to enforce a non compete agreement. |
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Trade Secrets and Confidential Information
A non compete designed to prevent the use and disclosure of trade secrets most likely protects a legitimate business interest. In seeking to enforce the agreement, the employer will need to demonstrate this point.
A trade secret is some process or methodology that is kept secret by the employer. Information that is shared with customers is generally not a trade secret. Information available on a company's website is generally not a trade secret. It has to be valuable in part because of its secrecy, and can't be just the employee's general knowledge.
Confidential information is a slightly broader category and includes information that might not meet the definition of a trade secret. Confidential information also has to be protected in the company, and cannot be something that is publicly known or widely distributed.
A trade secret is some process or methodology that is kept secret by the employer. Information that is shared with customers is generally not a trade secret. Information available on a company's website is generally not a trade secret. It has to be valuable in part because of its secrecy, and can't be just the employee's general knowledge.
Confidential information is a slightly broader category and includes information that might not meet the definition of a trade secret. Confidential information also has to be protected in the company, and cannot be something that is publicly known or widely distributed.
Goodwill as a Legitimate Business Interest
"Goodwill" in the context of non compete agreements refers to the employers relationship and reputation with customers and prospective customers. Customer facing employees are often key players in developing and maintaining these relationships. The law recognizes these customer and client relationships as part of the employer's "goodwill."
The most common example is a sales representative who works with the same customers repeatedly over time. The company "brand" is reflected through that employee. The employer will want to ensure that a competitor can't leverage that brand by hiring the sales representative. This too is generally considered a legitimate business interest that supports a covenant not to compete.
The most common example is a sales representative who works with the same customers repeatedly over time. The company "brand" is reflected through that employee. The employer will want to ensure that a competitor can't leverage that brand by hiring the sales representative. This too is generally considered a legitimate business interest that supports a covenant not to compete.
What is Not a Legitimate Business Interest
Simply not wanting employees working for competitors is not a legitimate business interest. A back office employee with no customer relationships or confidential information will likely not be held to a non compete.
The new Massachusetts non compete law addresses legitimate business interests explicitly. The statute codifies the common law about trade secrets, confidential information and goodwill. It also specifically excludes certain kinds of employees who are unlikely to trigger these concerns. This includes lower level workers who are not exempt from overtime, students, and employees who are under 18 years old.
The new Massachusetts non compete law addresses legitimate business interests explicitly. The statute codifies the common law about trade secrets, confidential information and goodwill. It also specifically excludes certain kinds of employees who are unlikely to trigger these concerns. This includes lower level workers who are not exempt from overtime, students, and employees who are under 18 years old.
Legitimate Business Interests and the Scope of the Non Compete
The scope of the non compete has to match the legitimate interest claimed. If the agreement covers a specific geographic location, that location should match the territory covered by the employee.
This means a nationwide non compete might be enforceable for a sales representative with a nationwide territory. In contrast, a 20 mile restriction might be overbroad for a hairdresser.
If the purpose of the restrictive covenant is to protect trade secrets, the length of time should also be considered. A trade secret that takes a year to replicate could probably justify a one year non compete. A trade secret whose value becomes stale or outdated within weeks may not.
This means a nationwide non compete might be enforceable for a sales representative with a nationwide territory. In contrast, a 20 mile restriction might be overbroad for a hairdresser.
If the purpose of the restrictive covenant is to protect trade secrets, the length of time should also be considered. A trade secret that takes a year to replicate could probably justify a one year non compete. A trade secret whose value becomes stale or outdated within weeks may not.
How Our Non Compete Lawyers Can Help
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We have years of experience representing people in non compete lawsuits in Massachusetts state and federal courts, as well as responding to cease and desist letters, and we would be happy to help. You can use the button below to schedule a call back from a member of our team, or give us a call at 781-784-2322.
