Legitimate Business Interest Supporting a Non Compete
Understanding the Importance of Legitimate Business Interests in Enforcing a Non CompeteThe enforcement of a non-compete agreement hinges on whether it's reasonably necessary to safeguard the employer's legitimate business interest.
Many disputes surrounding non-compete agreements revolve around the determination of what qualifies as a legitimate business interest. This criterion applies regardless of whether your non-compete falls under the 2018 Non-Compete Law's enforcement restrictions, and regardless of when it was signed. Legitimate business interests typically fall into two categories: protection of trade secrets or confidential information and safeguarding the employer's goodwill, especially with customers or potential customers. Other interests, such as retaining a key employee or hindering a competitor from acquiring skilled staff, usually do not meet the threshold for enforcing a non-compete agreement. Trade Secrets and Confidential InformationNon-competes designed to prevent the use and disclosure of trade secrets generally safeguard a legitimate business interest. However, the employer must substantiate this claim when seeking enforcement.
A trade secret is a guarded process or methodology within the company. Information openly shared with customers or available on the company's website typically does not qualify as a trade secret. For information to be considered a trade secret, its value must partly derive from its secrecy and not merely from the employee's general knowledge. Confidential information encompasses a slightly broader range of data and may include information that doesn't meet the strict definition of a trade secret. Like trade secrets, confidential information must be actively protected within the company and cannot be publicly known or widely distributed. Goodwill as a Legitimate Business InterestIn the context of non-compete agreements, "goodwill" refers to the employer's relationships and reputation with customers and potential customers. Employees who interact directly with customers often play a pivotal role in establishing and maintaining these relationships. The law recognizes these customer and client relationships as integral to the employer's "goodwill."
A classic example is a sales representative who consistently works with the same customers over time, thereby representing the company's brand. In such cases, the employer seeks to prevent a competitor from exploiting the brand by hiring the sales representative. This too is generally considered a legitimate business interest that supports a non-compete covenant. |
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What Doesn't Qualify as a Legitimate Business Interest
Merely desiring to prevent employees from working for competitors does not constitute a legitimate business interest. For instance, a back-office employee with no customer relationships or access to confidential information is unlikely to be bound by a non-compete agreement.
The new Massachusetts non-compete law explicitly addresses legitimate business interests. It codifies common law principles regarding trade secrets, confidential information, and goodwill. Additionally, it excludes certain categories of employees unlikely to pose concerns in these areas, such as non-exempt workers, students, and employees under 18 years old.
The new Massachusetts non-compete law explicitly addresses legitimate business interests. It codifies common law principles regarding trade secrets, confidential information, and goodwill. Additionally, it excludes certain categories of employees unlikely to pose concerns in these areas, such as non-exempt workers, students, and employees under 18 years old.
Legitimate Business Interests and the Scope of the Non Compete
The scope of a non-compete must align with the claimed legitimate interest. If the agreement specifies a particular geographic area, it should correspond to the employee's territory.
For instance, a nationwide non-compete may be enforceable for a sales representative with nationwide responsibilities. Conversely, a 20-mile restriction could be considered overly restrictive for a hairstylist.
When safeguarding trade secrets, the duration of the non-compete should be considered. A trade secret that takes a year to replicate may justify a one-year non-compete, while one with rapidly depreciating value might not.
For instance, a nationwide non-compete may be enforceable for a sales representative with nationwide responsibilities. Conversely, a 20-mile restriction could be considered overly restrictive for a hairstylist.
When safeguarding trade secrets, the duration of the non-compete should be considered. A trade secret that takes a year to replicate may justify a one-year non-compete, while one with rapidly depreciating value might not.
How Our Non Compete Lawyers Can Help
Understanding and applying these principles are crucial when navigating non-compete agreements. Our experienced employment attorney can help ensure you make informed decisions tailored to your specific circumstances. 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.
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