Non-competition agreements, also known as covenants not to compete or restrictive covenants, are employment contracts used by employers to limit the ability of an employee to compete with the employer by stealing customers or trade secrets. Enforceable agreements must strike a balance between protecting the employer’s legitimate business interests from an unfair competitive advantage with the employee’s right to work in a field for which he or she is trained. In general, courts decide what is considered reasonable or not reasonable by examining the type and size of the business, how long and over what geographic area the restrictions apply and whether adequate consideration, or benefit, was given the employee at the time the agreement was signed.
The Law In Kansas
Kansas courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect a legitimate business interest of the employer such as customer relationships or trade secrets. Factors considered when determining reasonableness include the hardship an agreement puts on the former employee, its effect on the general public and the restrictions placed on time, territory and activity of the former employee.
With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. Kansas courts have determined that the offer of initial or continued employment is sufficient consideration or benefit to the employee in exchange for agreeing to not compete with the employer should the employment relationship terminate.
Reasonableness in Time and Geographic Scope
Agreements may be deemed unenforceable if a court finds that they are unreasonable in terms of duration, geographic scope and the type of employment or line of business being restricted. If a court finds an agreement is unreasonable, it may modify the agreement so that it does not unduly infringe on the former employee’s ability to work.
Examples of non-compete agreements that Kansas courts have found to be reasonable include:
- A 3-year, 1-county restriction against 13 physicians from competing with their former clinic employer.
- A 2-year restriction against a licensed practical nurse from providing services to patients they had served while under contract with the former employer.
- A 5-year requirement that the former chairman and CEO of a professional accounting firm pay a declining percentage of fees received from clients of the firm within a 35-mile radius of the cities where the former employer maintained offices.
- A 1-year restriction against a former wholesale liquor salesperson where the court modified the geographic area to only include the counties where the salesperson actually serviced customers.
The courts have found the following restrictive covenants unreasonable:
- A 6-month restriction against a supervisor from negotiating for or accepting a position with any client or center of influence of the former employer and its affiliated companies.
- A 2-year, 25-mile restriction against a colorectal surgeon from competing with his former employer clinic.
- A 5-year restriction against a federal income tax preparation franchisee with no geographic limitation.
Employers need to keep these issues in mind when asking employees to sign restrictive covenants. It is also important to know if potential new hires have a non-compete agreement with a former employer. In some cases, the new employer can be liable to the former employer if hiring the employee would put him or her in violation of the agreement. Different rules may apply to situations in which all or part of a business is being sold and a restrictive covenant is agreed to by the buyer and the seller.