Insight

NONCOMPETES: Does Selective Enforcement Really Matter?

Many companies use restrictive covenant agreements (including noncompetition, nonsolicitation and nondisclosure agreements) to protect their businesses from unfair competition and customer poaching.

Noncompete Clauses
Elizabeth A. Coonan

Elizabeth A. Coonan

June 13, 2017 12:04 PM

Many companies use restrictive covenant agreements (including noncompetition, nonsolicitation and nondisclosure agreements) to protect their businesses from unfair competition and customer poaching. Much has been written about these types of covenants, their use as a restraint on employee activity both during and post-employment, and their enforceability. We often find employers have asked their employees to sign these restrictive covenant agreements, but when it comes to enforcement, they tend to be selective. Sometimes, this selectivity is driven by the cost of enforcement or the desire to maintain a friendly relationship with a departing employee in hopes that a business advantage can be gained. Sometimes, selectivity is merely a result of apathy.

For a company to successfully enforce a noncompete, it not only needs to prove the terms do not unreasonably restrict the employee and do not prejudice the public interest, but perhaps most significantly, that the terms are reasonably necessary for the protection of the employer’s business. Is the agreement really necessary to protect the employer’s legitimate business interest if the employer isn’t regularly taking steps to enforce the agreement against individuals who are violating?

Maybe. Selectively enforcing your restrictive covenant agreements can undercut your ability to stop employees’ competitive activity, even activity that is otherwise prohibited under a restrictive covenant agreement. However, business needs sometimes require it. Therefore, in addition to distinguishing and documenting the reasoning behind the company’s decision to enforce (or not), perhaps the company should ask: What is the purpose of our agreement? Is the agreement reasonably tailored to protect only that which is needed?

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