Richard D. Tuschman, P.A. Employment Lawyers

Can you make your employee non-compete agreement enforceable across all jurisdictions in the United States? Should you even try? Those were two of the questions asked at a panel conference on trade secrets and non-compete agreements which I recently attended. The consensus answer among the panelists was “no” and “no.” I agree.

Employee non-compete agreements are governed by state law. And state laws concerning non-compete agreements vary widely. In California, non-competes are generally unenforceable, except when the agreement is made pursuant to a sale of a business or a shareholder’s stock or dissolution of a partnership. In other states, such as Florida, broad non-compete provisions may be enforceable provided the restrictions are reasonable and justified by a legitimate business interest. In yet other states such as Nebraska, non-compete agreements that do more than restrict former employees from working with customers of the former employer with whom they had personal contact are unenforceable. In some states such as Wisconsin, courts are not permitted to “blue pencil” non-compete agreements to reform overly broad or unreasonable provisions in a non-compete agreement; if any provision is unenforceable, the entire agreement is invalid. In other states, courts are authorized to “blue pencil” non-compete agreements to reform otherwise unenforceable provisions. In some states such as Minnesota, existing employees must be given separate consideration in exchange for executing a non-compete agreement. In other states, continued at-will employment is sufficient consideration for executing a non-compete agreement.

Okay, so state laws vary, but can’t you have employees agree to be bound by the law of a state, such as Florida, that is generally favorable to non-compete agreements? Yes you can, but that does not mean this “choice of law” provision will hold up in court. If you sue the employee in the state in which he lives, and that state’s law on non-compete agreements is significantly more restrictive, the court may refuse to apply Florida law on the grounds that doing so would violate public policy. Okay, but can’t you also have the employee agree to a venue provision that says, for example, that any litigation will take place in Florida? That may not work, either. If the employee has never set foot in Florida, the court may have no jurisdiction over him regardless of what the contract says. In the meantime, the employee might file suit in his home state, seeking a declaration that his non-compete agreement is unenforceable. Now you’re dealing with litigation in two different states. That’s where things can get really messy, and really expensive.

The bottom line is that “one size fits all” non-compete agreements are about as unlikely to meet your needs as that “one size fits all” smartphone case that you saw on the clearance rack at the discount store. There’s too much variety among the state’s laws for a single agreement to be effective. Custom-made agreements tailored to each state’s law, and to the particular employee who will be asked to sign the agreement, will be far more effective. Having a lawyer draft such agreements will be costly in the short run. In the long run, they will save your company time, money, and headaches.