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In North Carolina, restrictive covenants between an employer and employee, such as a non-compete agreement, may be found in an employment agreement or in a severance agreement. Such restrictions are valid and enforceable if they are
(1) in writing;
(2) made part of a contract of employment;
(3) based on valuable consideration (change in employment);
(4) reasonable both as to time and territory (or customer/client restriction); and
(5) designed to protect a legitimate business interest of the employer (customer relationships and good will).
What is reasonable depends on the facts and circumstances of each individual case. An employer who seeks to enforce a non-compete agreement has the burden of proving that it is reasonable. At Crawford & Crawford, our attorneys can evaluate the terms and conditions of a non-compete to determine if it is enforceable and if adequate consideration has been provided. To discuss your case, contact employment law attorneys at Crawford & Crawford today.
The usual dispute is over the reasonableness of the time and territory or customer restriction. In evaluating the reasonableness of a territorial restriction, the courts focus on six overlapping factors: (1) the area or scope of the restriction; (2) the area assigned to the employee; (3) the area in which the employee actually worked; (4) the area in which the employee operated; (5) the nature of the business involved; and (6) the nature of the employee's duties and knowledge of the employer's business operations. To show the reasonableness of a restriction, the employer must show where its customers are located and that the geographic scope of the covenant is necessary to maintain those relationships.
The courts will look at time and territory restrictions in tandem. A longer period of time may be acceptable where the geographic limitation is small, and vice versa. There is no bright-line rule for time restrictions. Depending on the particular facts and circumstances, a reasonable time limitation could be from six months to five years. Additionally, employers usually ask an employee to sign a non-compete agreement when they are hired. Traditionally, the job itself is treated as due consideration for signing a non-compete. As a result, if an employee is asked to sign a non-compete agreement after he or she is already employed, some sort of due consideration should be offered. This may be in the form of increased pay, a bonus of some kind, or additional vacation time.
Non-compete agreements typically specify that the employer can obtain a temporary restraining order (TRO) to prevent breach of the agreement. A TRO can be obtained from the court without prior notice and is good for 10 days. The court then holds a preliminary injunction hearing to determine if the restraining order should remain in place pending final resolution of the lawsuit to enforce the non-compete agreement. A preliminary injunction may be entered if the employer can demonstrate a likelihood of success on the merits. Irreparable loss is generally presumed. Of course, if a preliminary injunction is granted, that effectively ends the case. Consequently, litigation involving non-compete clauses is on a compressed time frame.
At our firm, attorney Robert Crawford assists clients in analyzing the enforceability of non-compete agreements. Every client's situation is unique. He helps clients understand non-compete agreements and how they might be upheld or contested. He will help you plan an effective legal strategy to protect your business or your right to earn a living for yourself and your family.
Contact Crawford & Crawford, LLP, Attorneys at Law, at 919-436-3356 to schedule a consultation.