Draft Your Noncompete Agreements Carefully!
About a week ago, the North Carolina Court of Appeals issued a new Opinion (Copypro, Inc. v. Musgrove, No. COA13-297 (N.C. App. Feb. 4, 2014)) which centered on noncompetition agreements (also referred to as a “covenant not to compete”).
The case involved an employer (Copypro) suing its former employee (Musgrove) for violating a noncompete agreement that Musgrove had signed before beginning employment. The agreement stated that, for a period of three years following termination of employment, Musgrove could not compete with Copypro in any of the thirty-three eastern North Carolina counties in which Copypro conducted business (sales). Musgrove spent almost all of his time, on behalf of Copypro, in only two counties (and eventually resigned upon learning that he was not the only salesperson working for Copypro in those two counties). Within a year after leaving Copypro, Musgrove found another sales job with a direct competitor of Copypro, but focused on three counties which were not the two counties in which Musgrove had previously worked. Copypro learned that Musgrove was still working in Eastern North Carolina, and directly competing, and sued Musgrove for breach of the noncompetition agreement.
The court indicated a higher level of scrutiny for noncompetition agreements contained within employment agreements and that such agreements must be “(1) in writing; (2) reasonable as to time and territory; (3) made a part of the employment contract; (4) based on valuable consideration; and (5) designed to protect a legitimate business interest of the employer.” However, the agreement “must not impose unreasonable hardship on the employee and should not, for that reason, be broader than necessary to protect [the employer’s] legitimate business interest.” In this case, the court found that the noncompetition agreement fulfilled the first four requirements above, but did not fulfill the fifth. The agreement was broader than was necessary to protect the Copypro’s legitimate business agreement and so the court found in favor of Musgrove.
This opinion illustrates the significance of hiring an experienced attorney to draft and review any covenants not to compete in a business’ employment agreement. These noncompetition clauses must be drafted very carefully and narrowly, so as to be fully enforceable and valid in a court’s opinion. Failure to do so may result in a former employee being able to compete with your business directly (and locally), which may ultimately cost more money, time, and headache to your business in the long run.
The full North Carolina Court of Appeals Opinion can be found here.
