Employee noncompete agreements – why? - Business Law Legal Blogs Posted by John Tarley, Jr. - Lawyers.com

Employee noncompete agreements – why?

The analysis of the enforceability of noncompete agreements begins
with the question “How did the covenant not to compete arise?”  Employee
covenants not to compete generally arise in one of two ways:  1) solely
as a result of employment; and 2) arising as ancillary to another
agreement, such as an agreement to purchase the prospective employee’s
business.

Covenants not to compete that arise solely as a result of employment
generally arise in two ways:  1) an agreement simply required in order
to be employed; and 2) an agreement for which separate consideration is
paid by the employer to the employee, other than the bare offer of
employment. In Virginia, as much as a matter of fact as a matter of law,
covenants not to compete demanded solely in order to obtain employment
tend to be more “disfavored” by courts than covenants not to compete
that were independently negotiated and compensated.  Further, covenants
not to compete that arise from ancillary agreements, such as agreements
to purchase businesses, tend to be even less disfavored by Virginia
courts.  The reasons are obvious.  When a prospective employee is
required to enter into a non-competition agreement solely as a condition
of employment, without further consideration, the employee is not
really getting anything in exchange for the agreement.  The employee is
going to have to work in order to get paid.

However, where the employee bargains with the employer for the
non-competition agreement, where the employee gets paid for the
agreement or obtains some other consideration, and where it is not
simply a condition of employment, the equities shift somewhat in favor
of the employer to whom the duty is owed.  The employer gave up
something other than the mere right to work and the employee obtained
the benefit.  Further, where such agreements are ancillary to other
agreements, such as the sale of a business, the facts often suggest that
the employee was compensated  for the agreement in the form of part of
the purchase price of the business.  There the equities shift further in
the direction of the employer.  Generally, it is considered bad form
for a person to sell his business and subsequently move down the street
and recreate it to compete with the buyer.

Therefore, depending upon your status as employee or employer, you
will want to discuss with your lawyer the purpose for the noncompete
agreement before it is executed. We analyze even more issues relating to
noncompetes in this Tarley Robinson library article.

Tarley Robinson, PLC, Attorneys and Counsellors at Law

Williamsburg, Virginia

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John Tarley, Jr.

Licensed since 1992

Member at firm Tarley Robinson, P.L.C.

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John Tarley, Jr.

Licensed since 1992

Member at firm Tarley Robinson, P.L.C.

AWARDS

AV Preeminent

RECENT POSTS