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 Mississippi
Mississippi courts have determined that restrictive covenants are enforceable if the terms are reasonable and necessary to protect certain business interests of the employer such as customer good will or investment in specialized training of the employee. 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. Mississippi 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 Mississippi courts have found to be reasonable include:
- A 1-year, 2-county restriction against an insurance agent that applied only to the customers the agent worked with while working for the former employer.
- A 1-year restriction against a pacemaker salesman because he was highly skilled and it would take the former employer that amount of time to hire, train and place in the field his replacement.
- A 1-year restriction against a former assistant division manager of a road construction company from working within 100 miles of "any city town or village in the United States in which employee has worked for employer."
The courts have found the following restrictive covenant unreasonable:
- A 3-year restriction against a former liquefied petroleum gas retail store manager from competing with his former employer within a 50-mile radius of any location at which he had worked in the 24 months prior to termination.
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.
Questions & Answers: Non-Competition Agreements in Mississippi