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  • Writer's pictureJay Ingrum

Unlocking the Secrets of Non-Compete Agreements: A Guide for Employees and Employers

Legal Lens: Viewing Law Through Ingrum Expertise

Non-compete agreement

Although the economy is improving in the United States, and especially in the state of Tennessee, the job climate is still a difficult one for many.  Individuals need jobs.  Employers need competent, loyal employees.  Employers who hire, train, and invest in employees do not want to see those same employees jump to another company that is a direct competitor of the employer.  This is especially true if those same employees have knowledge of their employer’s business and trade secrets that they would be taking with them to their new employer.  Thus, many employers utilize non-compete agreements.

Non-compete agreements are not favored in Tennessee.  However, until recently, if a non-compete agreement was reasonable, then the Tennessee courts generally enforced them.  Businesses have to establish reasonableness and prove a legitimate business interest.  A business would have to prove that they had a protectable business interest where an employee that left the company would be able to gain an unfair advantage in competition.  This unfair advantage in competition would have to be over and above ordinary competition.

Courts look at a number of factors in determining whether an employer has a protectable interest that include: 1) whether the employee received specialized training from the employer, 2) whether the employee had access to business or trade secrets or other confidential information, and 3) whether the employer’s customers tend to associate the employer’s business with the employee because of the employee’s repeated contacts with the customers on behalf of the employer.  Any of these factors or a combination thereof could prove a protectable business interest.  The protectable business interest must not be weak or marginal. It must be a legitimate, protectable business interest.

If there is a protectable business interest, then the courts looks to another set of factors to determine if a non-compete agreement is reasonable.  Those factors include: 1) the threatened danger to the employer in the absence of the non-compete agreement, 2) the economic hardship on the employee through enforcement of the non-compete agreement, and 3) whether it is adverse to the public interest.  Generally, a non-compete agreement cannot be overly broad as to geographic region or as to length of time for enforcement.  So, for example, a non-compete agreement for a salesman for a company might be upheld if it kept him or her from working for a competitor of the employer in the state of Tennessee for one year.  However, a non-compete for the same employee that included the entire United States for ten years likely would not be upheld.  The hardship on the employee must be pretty severe for the hardship to trump a legitimate, protectable business interest that is protected by a reasonable non-compete agreement.

Employees desperate for a job might be tempted to sign whatever a prospective employer puts in front of them.  However, you should always read any paperwork before you sign it, especially a contract.  You should consider the consequences before signing any contract not to compete with your employer.  Remember, the best way to find a job is to have a job.  You will meet a lot of new people on the job, and this could lead to other job offers. So, do you really want to be tied down by a non-compete agreement? If you sign such an agreement, then make sure that it is not overly broad as to geographic region or length of time.  Also, make sure that the non-compete agreement is not overly broad as to the type of work you are prevented from performing.  Good luck and get to work!

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