Deciphering Your Non-Compete Agreement: What Does It Really Prohibit?
Understanding the Scope of Your Non-Compete Agreement
When it comes to non-compete agreements, it's crucial to decipher exactly what these contracts prohibit, assuming they are enforced. This understanding hinges on two fundamental questions: (i) the interpretation of the contract language, and (ii) the reasonableness of the restrictions as derived from this interpretation.
Interpreting the Contract Language
Non-compete contracts exhibit variations in their language, but certain common elements can be found in most of them. Let's break it down:
Introductory Clause: Typically, non-compete agreements start with an introductory clause that might read something like, "The employee will not directly or indirectly engage in any business or enterprise..." While this initial wording may seem overwhelming, the core message is simple: "employee shall not..."
All the additional words and phrases serve to emphasize that you cannot engage in these activities "directly or indirectly," whether as an owner, partner, officer, director, employee, consultant, investor, lender, or otherwise. To understand your non-compete restriction, focus on the "shall not" aspect and disregard the rest.
Definition of Competition: The real substance of the agreement comes after the introductory clause. For example, it might state, "Employee shall not engage in any business or enterprise that is competitive with any aspect of the Company's business with which the Employee had material involvement during his employment."
This is a common formulation, broadly defining the restriction as anything "competitive with" the employer's business. However, it leaves two critical questions unanswered: (i) what qualifies as "competitive," and (ii) can the employee work for a larger company with multiple business lines, even if one of those lines competes with the former employer?
In cases like this, it may ultimately fall upon a judge to answer these questions. Keep in mind that this determination will be made within the broader context of the general rule governing non-competes, which is that the restriction must be necessary to protect a legitimate company interest.
If your non-compete reads this way, it's advisable to consult with an attorney experienced in dealing with non-compete agreements. They will likely inquire about your company's nature and your responsibilities to better analyze how the broad definition of competition in the agreement aligns with the legal framework for enforcing restrictions.
A More Specific Example:
Consider a slightly more specific example of what an employee "shall not" do: "provide any of the types of services that I provided to the Company, in connection with any business that develops, manufactures, or markets any products, or performs any services, that are competitive with the products or services of the Company, or products or services that the Company or its affiliates have under development or that are the subject of active planning at any time during my employment."
This version clarifies that the employee is restricted only from providing competitive services, not from working for a larger organization with other non-competing business lines.
However, even in this case, there remains a need to define what "compete" entails. For instance, if you worked in research and development for a pharmaceutical company focused exclusively on cancer drugs, could you accept a position with another pharmaceutical company specializing in diabetes drugs? Or, if you sell managed software solutions, could you take a job selling a specific software package?
This is where the analysis of what is reasonably necessary to protect a legitimate interest comes into play. As a salesperson selling a completely distinct product or transitioning between unrelated categories of pharmaceutical research, the risk of misusing your former employer's proprietary information may be lower.
In conclusion, understanding the intricacies of your non-compete agreement and its restrictions is essential. Consulting with a legal professional who specializes in non-compete agreements can provide valuable insights into your specific situation and help you navigate these complex contracts effectively.
Need Help With a Non Compete Agreement?
Wondering About Your Rights Under a Non Compete Agreement?
Our Solutions Roadmap is a quick and easy way to share the details of what you are facing and receive preliminary feedback from a member of our team. Use the button below to get started- it is 100% confidential and 100% free.
How Our Non Compete Lawyers Can Help
Our team of skilled attorneys specializes in navigating non-compete agreements, ensuring you comprehend the intricacies of your contract and offering personalized legal solutions to safeguard your interests. 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.