Although the enforceability of non-compete agreements varies widely across the country (in California they are effectively unenforceable, while in other states employers use them with impunity), there are some basic rules for drafting non-competition agreements that apply in most places. A recent court of appeals case out of Illinois has a very useful discussion on the elements of what makes up a solid non-compete agreement. Here are some basic principles:
1. "Pigs get fed, hogs get slaughtered." Most non-competition agreements falter because of over-reaching by the former employer. While it may seem like a good idea to prohibit a former employee not only from working in your neighborhood, but in this dimension as well, most courts simply will not enforce such a provision. Remember, courts view non-compete agreements as restraints on trade, and, accordingly, with suspicion and hostility. Add to this the relative imbalance in bargaining power between an employer and someone seeking to hold a job, and you have a recipe for unenforceability. Instead of trying to stop your sales manager from going to work for anyone within a thousand miles of an operating location, restrict her from working with former customers. In other words, there should be a logical and articulable connection between the damage you want to prevent and the steps you are taking to prevent it.
2. Don't start with geographic or time restrictions; focus on the nature of the job. In the Illinois case, the court invalidated the agreement in large part because it prohibited the former employee from working for a competitor in any capacity whatsoever. The court's interpretation of the non-compete was buttressed heavily by the testimony of the employer's president, who cluelessly testified on cross-examination that the purpose of the clause in question was to prevent his former salesman from doing any work for a competitor in any role. Someone did not spend enough time at the woodshed with the witness, obviously.
3. Link your geographic limitations directly to the territory of the business operation, and no more. The Illinois non-compete operated to restrict the former employee's ability to conduct business on behalf of a competitor throughout Canada, among other places. Unfortunately, the employer had only conducted business in Toronto, and then only on one occasion. The appellate court promptly seized on this (remember, courts are looking for excuses to invalidate these agreements) as a basis for voiding the agreement. In other words, don't try to prevent business from taking place in a place where you are not taking business.
4. Make the timeframe for the restriction logical in light of the business activity being restricted. In one of my non-compete cases involving the high-tech sector, a judge in Virginia asked my client during the injunction hearing how long he thought his products would be on the market before being rendered technologically obsolete by industry improvements. "Somewhere in the 9-12 month timeframe," said the Chief Technology Officer witness, which happened to coincide nicely with the 12-month timeframe on the restrictive covenant. The judge granted the injunction, noting that he could not have supported a request for a longer limitation, given that there would be no protectable interest more than 12 months after the employee quit.
5. When you are hiring someone with a restrictive covenant that might be enforced against her (and against you), try to treat the former employer as you would like to be treated. What I mean by this is that I usually find business people are willing to try to reach a business solution on enforcing non-competes if they believe they are being confronted by business people on the other side. Quietly hiring people with non-compete agreements under circumstances that are clearly a violation is almost always going to result in litigation and an implication that the company doing the hiring knew it was doing something wrong. In my experience, you are far better off confronting the fact that the person you want to hire has a restrictive covenant in place and offering to strike some kind of business arrangement with the former employer.
At the end of the day, you do not want to be in litigation because you guessed wrong either on how much you could restrict your former employees or how enforceable the terms of that non-compete actually are. Unlike a lot of things in employment law, with non-competes, less actually is more.