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 Missouri
The Missouri statute governing non-competition agreements since 2001 provides that such agreements are enforceable if they are structured to protect:
- confidential information,
- trade secret information,
- relationships, goodwill or loyalty with customers, or
- relationships, goodwill or loyalty with suppliers.
Agreements that do not address these issues but last for no longer than one year are also lawful for all job categories except secretarial or clerical services.
With any contractual arrangement, both parties must be giving and receiving something of value, also known as consideration. Missouri 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 Missouri courts have found to be reasonable include:
- A 2-year, 100-mile radius restriction against a nurse from competing with home health care business
- A 1-year restriction against an independent contractor from selling manufacturer’s ceiling fans within the territory to which he was assigned.
- A 2-year restriction against a neurologist from practicing neurology within 75 miles of the employer’s office and from treating anyone who was a patient of the employer’s office at the time of termination.
The courts have found the following restrictive covenants unreasonable:
- A 2-year restriction with no geographic limitation against the former employee of a physician statement service.
- A 2-year restriction against the former general manager of sales of a protective coating manufacturer employer from competing “directly or indirectly” within several counties for the business of any of 42 specific customers.
- A 2-year, 75-mile radius restriction against a medical director for lack of a protectable interest in either trade secrets or customers.
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.