NC Court Reviews Noncompete Provisions in an Employment Agreement
According to N.C. Gen. Stat. § 75-4, North Carolina requires all non-compete agreements to be put in writing and signed in order to be enforceable. However, there are reasonable protection measures that need to be taken into consideration when drafting or signing an agreement.
In one instance, the North Carolina Business Court dealt with the matter of a non-compete clause between two limited liability companies. The case of Power Home Solar, LLC v. Sigora Solar, LLC, 2021 NCBC 36, concerns the degree to which the defendants breached the terms of their Employment Agreement contract. Under Vanguard Pai Lung, LLC v. Moody, 2019 NCBC 39, “stating a claim for breach of contract is a relatively low bar.” In this case, the contract allegedly breached was that of terminated employees (now defendants), who were claimed to have specifically breached the “Nondisclosure Provision,” “Noncompete Provision,” and “Non-Solicitation Provision” of the agreement when they moved to a competitor company, Sigora Solar.
First, the Employment Agreement signed between the defendants and Power Home Solar included a nondisclosure provision pertaining to confidential information of the company. The agreement specifically defines what is included within the bounds of confidential information, and it shows that the defendants held positions within the company high enough to have access to its confidential information. The court thus concluded that the defendants did breach the Nondisclosure Provision of the agreement.
Next, the court looked at the Employment Agreement’s Noncompete and Non-Solicitation Provisions. Under United Labs., Inc v. Kuykendall, 322 N.C. 643, 370 S.E.2d 375, 1988 N.C. LEXIS 485, 5 I.E.R. Cas. (BNA) 1346, these clauses must meet five elements to be enforceable:
1. In writing;
2. Within the employment contract;
3. Based on valuable consideration;
4. Reasonable both to time and territory; and
5. Not against public policy.
The court does not consider these elements lightly within an agreement.
Here, since Power Home did not demonstrate a reasonable basis that including these provisions within the Employee Agreement would protect its business, the court found the clauses too broad of a scope. Additionally, Power Home placed unreasonable restrictions regarding geographic territory that falls within the noncompete clause. The company also failed to provide factual evidence of the defendants soliciting Power Home’s current employees.
In conclusion, the court granted in part and denied in part the motion Power Home filed against its past employees working for a competitor company. The Nondisclosure Provision, as pleaded, was found to have been breached. The Noncomplete Agreement, however, as pleaded, was not found to have been breached.
This case demonstrates how noncompete agreements are not necessarily limitless. Although there are no exact tests, they must be reasonable in scope, under a certain duration, and within a plausible geographic location. More so, there has been a rise in business law away from noncomplete agreements and instead towards misappropriation of trade secrets.
As you can see, even though it may look like there is very little latitude when signing some non-compete agreements, a court may view it in a different light. If you have a noncompete agreement with your company but are thinking about leaving for a different company, consider consulting a business attorney to discuss the validity of your case and your next steps.
DYE CULIK PC is a Charlotte, North Carolina business and franchise law firm. If you have a question about North Carolina corporate law, business issues, or the Noncompete Provisions in an agreement, contact us at 980-999-3557 to see how we can help. Also, visit us on Instagram for the latest updates on our local community and its small businesses.