Competition is a funny thing. Non-compete agreements (or, in fancy legalese, “covenants not to compete”) rarely end the “Hey! You can’t do that!” discussion in the way that a former employer might think they do. Non-competes don’t always impose valid restrictions on a person’s ability to make a living. What are some things to keep in mind when considering a Tennessee non-compete?
Anatomy of a Tennessee Non-Compete
In Tennessee, there is a trend towards construing non-competes in favor of the employee. Still, a non-compete can be enforced, provided it is reasonable under the circumstances. There is no precise formula for determining whether a non-compete is reasonable, as a change in one fact could alter the analysis, but, below are some questions to ask when considering signing or enforcing a non-compete.
Was there adequate consideration?
Think of consideration as a promise to do something that you would not otherwise have to do. It’s an esesntial component of a contract: each party to a contract should have an obligation to the other (for example, an obligation by Company A to provide services to Company B, and an obligation by Company B to pay Copmany A ).
Does the agreement identify a legit, protectable business interest?
Identifying confidential and/or trade secret information may suffice to indicate a legitimate business interset, but note that general language is not an employer’s friend, here. Confidential information must be information that is actually confidential (client contact info, for example, is usually public). Likewise, trade secret information must actually qualify as trade secret. Valued information that an employer wants to protect from unauthorized or unfair competitive use should be spelled out.
Is the agreement reasonable?
The agreement should not be more restrictive than necessary to protect the employer’s legitimate business interest (i.e., that confidential or trade secret information). Factors considered by Tennessee courts include:
- Time: Is the time stated in the Tennessee non-compete (i.e., the time during which the employee would be restricted) reasonable?
- Territory: The agreement should define a specific geographic territory (a state? a city?) in which the employee is prohibited from engaging in competitive activity. The reasonableness of the geographic scope will vary depending on the facts of each case.
- Scope: The agreement must state the type of conduct or the type of activities that are prohibited post-employment, and those prohibited activities should directly relate to the employer’s legitimate business interest.
What’s the potential harm to the employer if the non-compete is not enforced?
If the employer wouldn’t be harmed, it’s likely that there is no protectable business interest at play.
What’s the economic hardship to the employee if the non-compete is enforced?
If the employee is essentially restricted from making a living for him or herself, that is a significant economic hardship.
Would enforcement of the non-compete go against public policy?
Generally speaking, it is difficult to enforce a non-compete against an attorney or a physician. Why? For reasons of public policy. It is in the best interest of the public for an individual to be able to choose who cares for his health or who looks after her legal interests.
The Point: There’s a tendency to feel trapped by — or protected by — the terms of a non-compete agreement, but there are many elements to take into account in order to determine the validity of such an agreement.