A noncompete agreement is a type of agreement between two parties, where one party promises not to engage in actions that would be seen as competing with the business.
Generally, noncompete agreements are focused on competitive actions that are taken after the parties’ business relationship has ended; however, there is often language included to safeguard against such actions during the business relationship as well.
Pursuant to North Carolina law, as long as it is in writing and signed by the restricted party, this type of agreement can simply be a clause contained in a more comprehensive agreement (i.e. an employment agreement) or it can be a standalone agreement. To best protect against any misinterpretation, we suggest that the noncompete be prepared as a separate agreement.
North Carolina courts have made it clear that noncompete agreements are disfavored. This is because they impose restrictions on trade. Therefore, in North Carolina, these types of agreements will only be enforceable if they are reasonable as to territory and duration. The territory element will likely be written as a certain mileage radius restriction, whereas the duration element will likely be written as a certain number of years after the termination of the parties’ agreement.
The nature and details of the business itself will play a critical role in determining reasonableness. For example, it may be reasonable for a noncompete to contain a 20-mile radius restriction for a certain type of business, but it would be unreasonable to impose the same restriction for another type of business.
Despite North Carolina’s discontent with noncompete agreements, this type of agreement is very common in the business law context. Generally, this is because employers want to ensure that their employees will not leave their position, after gaining knowledge and experience of the business, to go and work for the business’s competition or start their own competing business.
The best way for business owners to protect against the court rendering the agreement unreasonable is for it to be prepared in such a way that the scope is only wide enough to protect the business. In the event the court determines that the noncompete agreement is only partially unreasonable, the court will likely strike out the language necessary to render the agreement reasonable.
DYE CULIK PC is a North Carolina law firm, our attorneys represent businesses and franchises in all areas of the business life cycle and work with companies to determine what is best in regards to employee agreements, noncompete agreements, and nondisclosure agreements. Contact us or reach out to us by phone at 980-999-3557 if you would like to set up a consultation for your business.