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 Maine

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Maine 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 a business’s good will or confidential information. 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.

Consideration

With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. Maine 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.  Maine courts will evaluate the reasonableness of an agreement as the employer seeks to enforce it, not as it is written, which may be narrower in scope.  The courts will not, however, rewrite the agreement.

Examples of non-compete agreements that Maine courts have found to be reasonable include:

  • A 100-mile radius restriction against the former salesperson of a pipe and valve distributor where the distributor sought to enforce the restriction only as to two facilities instead of any of  its facilities, as the agreement was written.
  • A 3-year restriction against the former salesperson of a pipe and valve distributor from contacting, soliciting, or doing business with any entities that were customers while the salesperson worked for the former employer because it was reasonably necessary to protect the employer’s confidential information.
  • A 16-month, 2-mile radius restriction that the employer sought to enforce against a former employee optometrist even though, as written, the agreement could have covered a larger area.

The courts have found the following restrictive covenants unreasonable:

  • A 7-year, 60-mile radius restriction on the sale of insurance.  The restriction was mandated by a lower court relating to the disposition of an insurance agency during a divorce proceeding.  
  • A 5-year multi-city restriction against a real estate agent where the agent had only operated in one town.

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.