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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 Rhode IslandRhode Island 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 contacts, good will and trade secrets. Factors considered when determining reasonableness include whether the restriction is greater than necessary to protect the business interest of the employer and whether it imposes a hardship on the former employee.
ConsiderationWith any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. Rhode Island courts have not yet addressed the issue of whether 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 ScopeAgreements 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 by using the "blue pencil rule" whereby it deletes the offending language in the agreement. If the remainder of the agreement is enforceable on its own, then the court will enforce it.
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 Rhode Island
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