Limited by Industry

Courts generally will not enforce restrictive covenants that are not limited in scope to the employer’s specific industry. Restrictive covenants not limited to a specific industry presumptively unreasonable and against public policy. Public policy which disfavors encumbrances on an individual’s right to find gainful employment. An employer also has a right to protect its legitimate business interests from former employees. Restrictive covenants that are limited to the employer’s specific industry strike a reasonable balance between these competing interests by hindering an employee’s right to work no more than necessary to protect the employer’s legitimate business interests.

A quick example demonstrates why a covenant not to compete that is not limited to the employer’s industry is unreasonable. Employer owns a printing press. Employee who has a non-compete agreement leaves to work as a salesman for a mattress store. Employer has no legitimate business interest that is threatened by Employee’s selling mattresses. Employer’s printing press trade secrets are of no value to a mattress store, and Employer has little fear of losing customers to a mattress store. For this reason, Employee’s non-compete agreement would be unreasonable and unenforceable if not limited to Employer’s industry.

In some instances, limiting a restrictive covenant to a specific industry will not be enough to avoid placing an undue burden on an employee’s employment opportunities. In such instances, restrictive covenant must be even further restricted to only a subset of an industry. A real life example of this involved a non-compete agreement included in a college football coach’s contract. The covenant not to compete prohibited the coach only from coaching another football team in the same conference. Under this agreement, the coach could leave the school and still coach college football provided that his next school was not in the same conference.

How narrowly tailored the scope of the restrictive covenant must be to be enforceable depends in large part on the industry in which the employee works and the employment prospects in that industry. A non-compete agreement that is properly narrowed to a specific industry (or a subset of an industry) benefits both employers and employees. Properly limiting the application of the non-compete agreement to the employer’s industry (or subset thereof) safely avoids the possibility of imposing undue hardship on the employee by providing enough opportunities for other employment after leaving the employer. It also protects the legitimate business interests of the employer and raises the likelihood that its restrictive covenant will be found enforceable.

Employers and employees often fail to scrutinize their own restrictive covenants under the same microscopes courts will. That is why having a highly experienced attorney to review restrictive covenants is crucial before an employer and employee entering them.

The attorneys at DiTommaso have decades of experience negotiating employee contracts and non-compete agreements. It is always good policy to have a knowledgeable attorney review the contract for fairness before signing it. It is equally important to have a knowledgeable attorney advise you regarding the enforceability of the restrictive covenants after the employment has ended. If you have questions about a non-compete agreement or other restrictive covenant, please contact us online or call us locally at 630-333-0000.