Imagine for a few minutes you are an owner of a specialized pharmaceutical production facility. You find it necessary to hire a fresh batch of employees, all of which have prior experience working in other similar facilities. One of the first things you do is begin training the new personnel in the unique processes and practices you implement in your factory. These days of training cost your company a great deal of money, time, and resources. Due to the specificity of the work done in your facility, however, you know that this training is necessary.Now, imagine that several of your employees plan to leave your company and start their own car parts production plant, using trade secrets they learned while in training. They do so, start a company in your local region, and begin taking many clients from your business. How would you feel? Robbed? Cheated? Betrayed? These feelings and others would fill your mind. Thankfully, there is a way to prevent this from occurring: non-compete agreement.
A non-compete agreement is an essential business document that can help protect you as an employer. If you are an employee, understanding the laws behind non-compete agreements can help you understand the extent to which courts will hold you to your non-compete agreement. Each state has different stances on the ability of employers to obligate employees to sign a non-compete agreement (also known as a covenant not to compete). In Utah, the touchstone for evaluating the enforceability of a covenant not to compete is reasonableness. At Sumsion Business Law, our team of attorneys is experienced to either draft, enforce, or argue such an agreement for you.
Depending on whether your company is a national chain or a small business, the geographical restrictions will vary widely. These restrictions are often imposed relative to the scope and nature of the employer. An overly broad geographic coverage that is not in harmony with the scope and nature of the work has a higher likelihood of being found unenforceable by the court.
Time Period of Limitation
You can't prevent an employee from using the skills acquired while working for you for their whole lives; this would be unreasonable. In Utah, restrictive covenants for two years of less tend to have a greater chance of being enforceable. However, non-compete agreements that span two to five years have been repeatedly held as a reasonable time restriction. An overly broad period of limitation will likely be found unenforceable; however, if an employer can prove the covenant was drafted in good faith, alterations can be made to render the agreement enforceable.
Nature of the Employee's Duties
In common occupations, such as salespersons, it would be highly unethical of an employer to restrain its employees to earn a livelihood because the employer's goodwill rubs off onto employees. In addition, reasonableness cannot be found where an employee bring skills previously acquired. If an employee doe obtain any knowledge of methods or processes exclusively within the control of their employee, it can be said a non-compete agreement is reasonable.
Nature of Interest which Franchisor Seeks to Protect
A non-compete agreement must have an interest in protecting the goodwill of the business. For example, it is reasonable for an employer to properly protect specialized training or trade secrets through a covenant not to compete. Such agreements are only enforceable to the extent necessary to prevent the disclosure or use of trade secrets or confidential customer information.