Covenants Not to Compete in Employment Contracts

A non-compete agreement restricts the employee’s ability to utilize the assets from the present employer to benefit a future employer. For instance, such a provision can prohibit the worker from transferring his/her present clients to any other future project. It also refers to using business tricks and secrets which are unique to each employer. All the states have a varying outlook towards covenants not to compete. In many states, not-to-compete provisions are generally allowed. However, the scope of such limitations must be reasonable and not coercive. In the State of Wisconsin, such a covenant is within the ambit of “freedom to contract.” The “freedom to contract” right states that such covenants are enforceable if the restrictions are reasonable and within the legal ambit.

The Wisconsin Court in Selmer Co. v. Rinn (Ct. App. 2010) states that covenants not to compete are subject to scrutiny based on the given circumstances. A court may state any covenant as unreasonable if it sets restrictions on an employee/worker to never work in a similar field of business. On the contrary, states such as California and Colorado consider almost all non-compete provisions as void. The California Supreme Court in Edwards v. Arthur Anderson LLP (44 Cal. 4 937) states that all regulations must go through strict interpretation. Hence, the courts must strictly interpret all non-compete provisions and not just the ones which are unreasonable.

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Covenants Not to Compete in Employment Contracts

A not-to-compete contract is a restrictive covenant. The employers use this covenant to restrict the employee’s freedom, which is restricted from pursuing similar work shortly. Such contracts are difficult to track without the help of a specialized employment attorney, and these contracts can affect the compensation receivable by an employee.

Not-to-compete agreements can ban employees at a specific organization from working for a rival competing employer for a specified period. The theory behind such contracts is to provoke innovation and restrict employees from disclosing trade secrets. These contracts restrict the transmission of technical R&D and intellectual property to other competitors.

Not-to-compete agreements also acknowledge employer investments in employee management and training, as the employers are constantly stressed that the employees may share their trade secrets with competitors. However, the agreements also affect the employee’s right to switch jobs. This agreement may also result in joblessness as the employees may find it extremely difficult to leave one job and find another that meets the needs of their non-compete contract with the previous employer.

Enforceability of Non-Compete Contracts
Courts have concluded that not-to-compete agreements are enforceable and legally binding if the contract is incidental to an employment relationship between the employer and the worker. The limitations are essential for guarding the employer’s interest in the business. The restrictions are based on the duration (of employment) and the jurisdictional area.

The employer must formulate a legal business interest that he/she is willing to protect by way of this contract. For a not-to-compete covenant to be enforceable, there must be a monetary exchange. It is also essential to determine if such an employee left by way of termination or whether he/she left voluntarily. This covenant is confined solely to the employer and is not subject to assignment to any new entity that takes over the former employer’s business.

Preliminary Injunctions and Not-To-Compete Contracts
There is usually a unique speedy litigation process where an employer seeks to enforce the non-compete clause. Employers view that they might suffer direct harm if an employee/worker violates a non-compete contract. Therefore, employers file preliminary injunctions to obtain speedy relief.

Preliminary injunctions refer to court orders given during the pendency of proceedings. If the employer desires to obtain a preliminary injunction against any previous employee, he or she must establish the following:

That the preliminary injunction is necessary to mitigate irreparable harm or any monetary damages,

The absence of preliminary injunction will cause more significant injury,

That the said injunction will restore the parties to their respective status quo,

That the employer possesses the merits to obtain such injunction, and

That such preliminary injunction will protect the public interest.

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