Non-Compete Agreements: One Size May Not Fit All
November 4, 2015
Employers with a multi-state presence must understand that the ability to enforce a non-compete agreement varies from state to state. For example, while Florida is one of the more “employer friendly” states for enforcing non-compete agreements, California prohibits such agreements with limited exceptions. Other states, though permitting non-compete agreements, may not recognize the “blue pencil” doctrine pursuant to which a court may narrow an overly restrictive non-compete agreement to make it more reasonable in scope. Employers often implement non-competes that are far more restrictive than necessary under the assumption that worse comes to worst, a court will simply narrow its scope instead of tearing up the agreement. Unfortunately, courts in states that do not apply the blue pencil doctrine may void the agreement in its entirely if it is overly broad in any respect. As such, the strategy of drafting a non-compete that is broader than necessary and counting on the blue pencil doctrine as a safety net may be ill advised depending upon the state(s) the agreement is meant to cover.
One way to limit the risk of inconsistent enforcement of a standard agreement across multiple states is to include a “choice of law” and/or “forum selection” clause in the agreement. For example, a Florida-based employer that employs individuals in Texas (where restrictive covenant law is more employee friendly) it wants bound to a non-compete, would naturally want to include a clause providing that Florida law shall govern the agreement and that any action regarding the agreement must be brought in a Florida court. However, inclusion of such provisions is by no means a fail safe. Though courts should generally honor choice of law and forum selection clauses, there have been cases in which employees have successfully argued that the clauses should be disregarded.
In addition to inclusion of a choice of law/forum selection provision, careful attention must be paid to the substantive language of the agreement to ensure its compliance with the law of any state in which it may be enforced just in case a court rejects the choice of law/forum selection provision and applies the law of a state that is less employer friendly. Employers must also be sure that the agreements are supported by adequate consideration. Though Florida recognizes continuing employment standing alone as sufficient consideration, others do not.
Employers requiring the protection of non-compete agreements in multiple states may in fact find that separate agreements tailored to the specific laws of each state may be the most advisable solution. The added time and expense of preparing state-specific agreements would likely pale in comparison to the potential damage resulting from an unenforceable agreement. This of course may be overkill if the states at issue are all relatively uniform in their recognition and treatment of non-compete agreements and other restrictive covenants.
Bottom line, an employer cannot assume that one standard non-compete agreement will adequately protect its interests in all states where it does business. Implementation of a non-compete agreement should only be carried out under the sound guidance of an attorney experienced in employee restrictive covenant law.