Call Us Now
Email Us Now
Understanding When Non-Compete Agreements Apply and How They Are Enforced
Businesses spend a lot of time and attention recruiting and retaining top employees and contractors. But what’s to stop them from moving on to a different company — and taking all of the ideas and strategies they learned at your business along with them? Non-compete agreements are one option businesses have to ensure that their business is protected if an employee or executive decides to take an offer elsewhere or strike out on their own.
The Legality of Non-Compete Agreements in Arizona
Whether a non-compete agreement is legal and whether it can be enforced varies by state. Only four states have a full ban on non-compete agreements, but another 33 have restrictions on when and how they can be used. In Arizona, non-compete agreements are allowed and can be enforced by the courts. The one industry exception to this is broadcast employers, which are not allowed to require an employee to sign a non-compete agreement as a term of their employment.
While non-compete agreements are allowed in Arizona, they are not a guarantee. State law says that a non-compete agreement must be “reasonable,” but what constitutes reasonable is not defined by law. This means that the judge has the full discretion to determine whether a non-compete agreement was reasonable and whether it should be enforced. Much of the case revolves around presenting evidence to show that the non-compete agreement was reasonable for the industry and situation.
Other important case elements include showing that the employee did violate the terms of the agreement and that the company suffered some type of loss or damages as a result. If you are relying on a non-compete agreement to protect client lists, operational processes, and other trade secrets, it’s imperative that you document any losses your company incurred from the breach.
Elements to Include in a Non-Compete Agreement to Protect Your Business
A non-compete agreement is a business contract, so many of the same elements apply. For example, it should name both entities, be properly signed, and provide a clear outline of the restrictions of the agreement. These may vary depending on the employee’s role and the industry, but below are some common elements you may want to include:
- What role the employee can move on to. Non-compete agreements are generally concerned with keeping an employee from leaving to go work for a direct competitor. For this reason, non-compete contracts generally note what industries or roles the person is restricted from
- How long the restriction applies. Most people get a job in the same industry when they leave an employer. It wouldn’t be reasonable, for example, to restrict an account executive from working in the sales industry forever. Non-competes generally include a specific timeframe for how long the employee is barred from working in the same industry — 6-12 months is typical — but there are usually no restrictions on the employee taking a similar role in a different industry or different role in the same industry.
Depending on the situation, you may also want to include restrictions so that an employee can’t take a similar role in the same location your business operates in or with specific competitors. The latter is especially common, as this helps ensure that a former employee can’t go to a competitor and provide inside information about how your company does business.
Dealing With Out-of-State Transactions
Non-compete agreements aren’t enforceable in every state. If you’re doing business with an organization outside of Arizona, it’s important to know whether non-compete agreements are enforceable in that state and how you can protect your business if they’re not. If your business has international or remote employees, this can be even more difficult to navigate. This is one situation where it’s vital to ensure that you have a business law attorney helping you with the process so that you can ensure your company is protected no matter where your employees reside, even if that means using something other than a non-compete agreement.
What to Do If Someone Violates a Non-Compete Agreement
If you had a non-compete agreement in place and a previous employee violated it, there are some specific steps to take.
Document Everything
It’s imperative that you document as much as possible leading up to and during any legal action. You should be able to provide an attorney with the non-compete agreement, details of the breach, and what losses or other damage the company incurred as a result. In some cases, this could be specific financial damages, such as an employee taking company clients with them to their own business. However, there are other ways to establish and calculate damages that an attorney can explain.
Send a Formal Notification
Once you become aware that a non-compete agreement has been breached, a formal notification will need to be sent to the ex-employee. This can be a cease and desist letter or notice of pending legal action. This ensures you have followed the proper procedures and gives them a chance to respond.
Consult an Attorney
When a former employee is in violation of a non-compete agreement, you may need to take formal legal action to get compensation for any damages thus far and ensure your company isn’t subject to further losses. A business law attorney who has experience in non-compete agreements in Arizona can help you explore your options and protect your business.
If you have questions about how to enforce a non-compete agreement, call AVID Esq. Group, LLC, at 480-467-5636 to schedule a consultation.
