Post Employment Covenants

Difficult economic times can result in frayed business, shareholder, and employment relations. In particular, as business owners and key employees grapple with these difficult economic times, the question of the enforceability of post employment covenants, such as non-disclosure, non-compete and/or non-solicitation agreements, comes to light.

While it has been said that courts have generally looked upon covenants not to compete with skepticism and have cautiously considered and scrutinized them, the validity of those agreements that contain reasonable geographic and temporal restrictions has long been recognized. Indeed, it is also recognized that enforcement of non-compete agreements can be in the public interest. Preserving the sanctity of contractual relations and preventing unfair competition have traditionally been in the public interest.

In determining whether and to what extent a court will enforce a post employment covenant a court will balance the conflicting rights of an employer to enjoy the use of secret processes and devices which were developed through his own initiative and investment and the right of employees to earn a livelihood by utilizing their personal skill, knowledge and experience.

A covenant not to compete which imposes unreasonable restrictions upon an employee will be enforced to the extent necessary to protect an employer's legitimate interest. The covenant is reasonable if the restraint is no greater than is required for the protection of the employer, does not impose undue hardship on the employee, and is not injurious to the public. Among the factors to be considered are (1) the absence or presence of limitations as to time and space, (2) whether the employee represents the sole contact with the customer, (3) whether the employee is possessed of confidential information or trade secrets, (4) whether the covenant seeks to eliminate unfair competition or merely seeks to eliminate ordinary competition, (5) whether the covenant seeks to stifle the inherent skill and experience of the employee, (6) whether the benefit to the employer is disproportional to the detriment of the employee, (7) whether the covenant operates as a bar to the employee's sole means of support, (8) whether the employee's talent that the employer seeks to suppress was developed during the period of employment, and (9) whether the forbidden employment is merely incidental to the main employment.

Non-disclosure agreements present slightly different problems and generally do not contain the same type of geographically or temporal restrictions. They are generally enforced so long as the information remains a trade secret. Indeed, an action for misappropriation or conversion of trade secrets can be maintained even without a non-disclosure or non-competition agreement. Moreover, information that constitutes a trade secret does not lose its character as a trade secret if it has been memorized by the employee.

If you require representation in a business, shareholder or employment dispute, please contact David M. Cuppage or Scott D. Simpkins (216) 621-8484.