Common Provisions In Non-Compete Agreements
I’ve previously written on the prevalence of employee non-compete agreements in places like Washington State, where competition for qualified tech employees, especially in Seattle, is fierce.
Due to the interest generated by that post, I decided to write this follow-up post to discuss some of the common provisions found in non-compete agreements, including the following:
Choice of law clause.
Venue and forum clause.
Garden leave clause.
Prohibition on preparing to compete.
Choice of Law Clause
A choice of law clause in a non-compete identifies the state’s law that applies to interpreting the agreement.
This can be a critical clause because certain states don’t allow non-competes to be used at all (California is a prominent example), and the states that do inevitably have differing laws that govern non-competes. So the use of one state’s laws as opposed to another may be the difference between a non-compete being enforced or disregarded.
Employers may be tempted to choose the laws of the state that is most favorable to them, but this is usually a mistake, as courts will typically disregard a choice of law clause if the chosen state lacks a real connection to the parties and the agreement.
Venue & Forum Selection Clause
A venue and forum selection clause is similar to but distinct from a choice of law clause. Employers often identify a venue, which is a specific geographic location, and a forum, which is a certain court, in which any dispute over the non-compete agreement—including an enforcement action—will be adjudicated.
This type of clause gives the parties a clear idea of where any litigation over the non-compete will take place. It can also increase the likelihood that a choice of law provision is enforced. The courts of a particular jurisdiction are often more willing to apply the laws of their own jurisdiction than that of another.
Garden Leave Clause
Sometimes employers agree to continue paying a former employee’s salary and other benefits during the period of time after employment has ended but while the non-compete remains in effect. This is known as a garden leave clause.
Garden leave clauses may make it more likely that a court will enforce a non-compete, though this depends on which state’s law is being applied. Still, it makes sense that courts would be more willing to enforce a non-compete—which is generally disfavored as a restraint on trade—where the employer continues to compensate the former employee while the non-compete is still in effect.
A notification provision in a non-compete means that the departing employee must disclose to their former employer who their new employer is and what kind of work their new job entails.
The point of a notification provision is to make it easier to enforce non-competes. If the previous employer doesn’t keep track of where their former employee goes to work and what he or she is doing, they’re much less likely to find out if the former employee has violated the terms of the non-compete.
Notification provisions sometimes also require a departing employee to give a copy of the non-compete to subsequent employers. The effect of this is to make it easier for the former employer to sue a subsequent employer directly, as the subsequent employer should have had advance notice of the non-compete.
Prohibition On Preparing To Compete
Employers may prohibit their employees from preparing to compete while they’re still employed.
Marketing is the classic example of preparing to compete while still employed. If an employee is subject to a prohibition on preparing to compete clause, he or she should not begin marketing, say, a new business venture while still employed.
Non-competes will invariably contain a remedies clause. This clause establishes what rights the employer has if the non-compete is violated.
The typical remedies for employers are monetary relief and equitable remedies, including injunctive relief. The right to obtain an injunction can be a particularly powerful weapon to wield against former employees who leave to start their own competing venture, as it can effectively shutter the startup.
A blue-pencil clause refers to the practice of courts modifying or eliminating unenforceable parts of a non-compete agreement.
Some states don’t allow courts to do this (Washington State has neither adopted nor disavowed this practice). But where it is allowed, employers are likely to authorize it expressly in the non-compete, as it increases the likelihood that a non-compete will be enforced even if in a narrower fashion.
This list of common provisions in non-competes is not exhaustive. There are plenty of other clauses you may encounter, especially because non-competes agreements are handled differently by every state. But knowing to look for these provisions should give you a good start on understanding the particular terms of your non-compete. And as always, talk to a good lawyer before doing anything that might run afoul of your non-compete.