Are Non-Competes Enforceable In North Carolina?
Many employers in North Carolina have limitations written into their employment agreements on what employees can do once they leave the company. There are good reasons for companies to do this, including protecting sensitive information and customer relationships that employees forge during the time of their employment.
However, many of these are lumped together in one document, and mistakenly define all restrictions as a non-compete clause. In North Carolina, both non-compete and non-solicit agreements are fairly common, but are often used interchangeably and confused with each other. What’s the difference between these agreements, and are they enforceable in North Carolina?
What Is A Non-Compete Agreement?
A non-compete agreement is a contract that restricts a party (like an employee) from providing the same services, whether as an employee or in another capacity, in competition against the other party (the employer).
The non-compete agreement is generally restricted to a time period (months to years) and geographic area in which the company operates. It also defines the types of work that are deemed “competitive” to the company.
Non-Compete Agreement Enforceability In North Carolina
A common question for employees and employers alike is whether non-compete agreements are enforceable in North Carolina. The answer is yes, with restrictions.
In North Carolina, non-competes are generally enforceable and valid if they are
- In writing
- Based on consideration
- Sensible as to territory and time
- Part of an employment contract; and
- Designed to safeguard legitimate business interests.
A North Carolina court can only judge the reasonableness of geographical and time restrictions to balance the rights of the employee against that of an employer regarding the protection of legitimate business interests. In protection of customer relationships, including goodwill against misappropriation by leaving employees, the covenant restricts the employee’s employability within the specified area to safeguard the business of the employer.
If the non-compete is deemed too broad or unreasonable, however, North Carolina courts can not rewrite the clause and it is not enforceable.
Should You Put A Non-Compete Agreement In Employee Contracts?
In most cases, it’s a good idea to use non-compete agreements in employee contracts in order to protect legitimate business interests and prevent an employee from promoting a competitor after they leave your company. Most jurisdictions will allow non-compete agreements when the restrictions aren’t greater than the protection of legitimate business interests.
What Is A Non-Solicitation Agreement?
Non-solicitation agreements are contracts or clauses that prevent employees from taking customers, potential customers, or other employees to work with or for a competitor following an employee’s time with the company. Similar to non-competes, they start once an employee’s time with the company ends and continue for a specified period of time.
However, non-solicitation agreements do not prevent an employee from working with a competitor like a non-compete agreement.
Non-Solicitation Agreement Enforceability In North Carolina
North Carolina courts have deemed non-solicit agreements on many occasions against former employees unenforceable and overreaching when they are written to apply to all customers and leads of a company.
Most non-solicitation agreements in North Carolina these days limit the prohibition to customers with whom the employee had material contact with, within a defined time period (1 year is most common), in order to ensure they are enforceable.
Should You Put A Non-Solicit In Employee Contracts?
In many cases, your employees have full access to your customer database, business processes, and intellectual property. After leaving a company, it’s not uncommon for employees to try to go out on their own or join a competitor and take your customers, employees, or processes.
Having a non-solicitation clause in your employment agreement can help protect your business from this type of situation. Non-solicitation clauses can also help protect your business value to an acquirer if you are in the process of selling your business.
Notable Differences Between Non-Compete and Non-Solicit Clauses
It’s easy to confuse the two types of agreements and use non-compete and non-solicitation clauses interchangeably. Yet, there are important differences between the two – non-compete clauses solely restrict an employee from offering similar services to a competitor or starting a competing business, while non-solicitation limits the employee from soliciting or persuading other employees, customers, and leads to join your competitor after contract termination. With this, both non-compete and non-solicit clauses can bring distinctive benefits to a business.
A non-compete clause is perhaps the most valuable to protect the time and money spent on developing an employee’s skills, although it is more difficult to enforce than a non-solicit agreement. On the other hand, non-solicit clauses play a critical role in protecting an employer’s investment, primarily maintaining customer relationships even after the termination of one or more employees.
If you are working with independent contractors, non-compete clauses generally have unintended effects and are unenforceable in most US courts. In this situation, a non-solicit clause would be a better fit.
Green Mistretta Law Can Help
At Green Mistretta Law, we proudly serve clients across North Carolina and help them resolve their disputes through mediation and litigation. To speak with a member of our firm about your employment agreements, fill out our contact form, or call our office (919-278-7453) to schedule a consultation. We look forward to serving you.
This article does not establish an attorney-client relationship and must not be construed as legal advice.