Employee Non-Compete, Non-Solicitation and Anti-Piracy Agreements

Business owners who have non-compete and/or non-solicitation agreements in place with their employees should resist the temptation to place unmerited reliance on their usefulness and enforceability. That is, as a means for protecting against loss that could result from the departure of, and eventual direct competition from, a key employee.

Business owners should familiarize themselves with the similarities, differences, and general enforceability of non-compete, anti-piracy, non-solicitation and related agreements - and the limitations of each.

Non-Compete.

Agreement between employee and employer that prohibits the employee from competing against the employer. Typically, it's for a limited period of time after the employee leaves the employ of the employer. It's also common to restrict the non-compete to a certain industry and/or geographic region. Many states consider non-compete agreements to be illegal or, at least, unenforceable. For this reason, most employment law experts steer their clients away from non-compete agreements and toward other means of protection.

Anti-Piracy.

Similar to the non-compete, but much narrower. Attempts to restrict the departed employee from soliciting customers of employer and from disclosing or making use of confidential information of employer. Because it is less restrictive on the employee (and thereby less of a restraint on free trade), courts have been more willing to uphold anti-piracy agreements (compared to non-compete agreements). Most employment law attorneys now suggest employers use antipiracy- type agreements.

Non-Solicitation.

Even narrower than the anti-piracy agreement. Restricts the departed employee from soliciting business from established customers of the former employer, but does not address the employee's potential use of the former employer's confidential information. Agreements such as these have been upheld in state courts when they are properly drafted and contain appropriate limitations.

Confidentiality.

An employee's promise not to use or disclose (to third parties) sensitive and confidential information of the employer. Often, the prohibition extends for a period of years after the employee departs the employ of employer. State courts have widely upheld agreements of this type as enforceable.

Again, business owners should take care to know how these agreements can and should be used, and their limitations, which are considerable.

The enforceability of employment-related agreements is established by state law. Making the employer's task more challenging is that state laws vary from state to state. The only remedy is to definitively determine the set of laws (i.e., which state laws) under which a particular agreement will be interpreted, and then craft the agreement in a way that maximizes protection and minimizes any risk that the agreement could be rendered void.

To be sure, court dockets throughout the United States are filled with rulings whereby non-compete and non-solicitation agreements have been rendered null and void, leaving employers with virtually no recourse or protection against employees who have departed and competed - in many cases, causing considerable harm to their former employers.

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