(1) An employer may seek to minimize business competition by including in the employment contract a provision prohibiting the employee from engaging in competitive activities after termination of his or her employment agreement. (2) This type of provision usually prohibits the employee from working for a competitor of the employer as well as from establishing a competing business. (3) It might also include a provision protecting the trade secrets of an employer from an ex-employee’s unlicensed. b.
Enforceability
For a noncompetition covenant to be enforceable, it must (1) relate to (be ancillary to) the employment contract, (2) be supported by adequate consideration, (3) be designed to protect a legitimate business interest of the employer, and (4) be reasonably limited in territory and duration. c.
Issues to be Addressed
(1) The objective of a Covenant Not to Compete is to protect the business acquired from competition by the Seller. (2) A well drafted covenant Not to Compete should address the following issues: (a)
The duration of the restrictive covenants,
(b)
The geographic scope of the noncompetition provisions,
(c)
A description of the what is a “competing business” and
(d) The percentage of ownership that the seller may own of a company that is engaged in a competing business. (3) It is important examine state law in order to ascertain what will held as “reasonable” in a particular jurisdiction. (a) Care must be taken in drafting language that relates to the scope of noncompetition provisions. (b) If the restriction is drawn too broadly in terms of duration, the geographic scope, or the definition of "competing business”, then the covenant is more likely not to be upheld by the court. In some jurisdictions courts will not revise overreaching restrictive covenants but will strike them completely. (c) Also some consideration should be given to the question of just who should be bound by the covenant. In certain cases key 83