The covenant not to compete prohibits an employee or business seller from working at or operating a competing company, in substantially the same position or engaging in substantially the same work, for a set period of time. The terms of a covenant not to compete help to protect a company's or business buyer’s good will, confidential information, trade secrets and customer lists.
A covenant not to compete has three elements: (1) a limitation on the work that may be pursued by the employee, (2) a definite time, and (3) a definite geographical area. The time and geographical restrictions are usually straightforward; the limitation on work is a little more complex. For example, the employee may be prohibited from working for another company engaged in the same type of business, or the employee may be prohibited from using customer lists to solicit business for his new employer. The employee may be prohibited from owning or managing a company in the same industry, or the employee may not start his own business in the same industry.
The non-compete clause should probably be tailored to the type of work that the employee does. Using a standardized non-compete clause may seem less costly, but may result in an unenforceable non-compete clause. Generally, a covenant not to compete has to be reasonable in order to be enforceable, though in some states these covenants are completely unenforceable. In Connecticut, five factors are considered in determining whether a particular covenant is reasonable: (1) the length of time the restriction operates; (2) the geographical area covered; (3) the fairness of the protection accorded to the employer; (4) the extent of the restraint on the employee's opportunity to pursue his occupation; and (5) the extent of interference with the public's interests. Whether an employee voluntarily left his employment or was discharged is not relevant in determining whether a covenant is reasonable.
What happens if the covenant is unenforceable? Ordinarily, if any part of the covenant is unreasonable, then the entire covenant is unenforceable. Some states, Connecticut included, follow the “blue pencil rule." Simply put, the “blue pencil rule" allows a court in certain circumstances to modify a restrictive covenant to make it reasonable. However, Connecticut’s “blue pencil rule" is rather narrowly drawn. The “blue pencil rule" can only remove severable parts of the restrictive covenant. If the covenant is intended by the parties to be one entire covenant rather than several distinct covenants, then the covenant cannot be severed and the court cannot modify the covenant.
Time is of the essence when litigating non-competition agreements. The longer the employee is permitted to work in violation of the non-competition agreement, the more damage is done to your company. As soon as the violation of the non-competition agreement is discovered, the company should have counsel seek a Temporary Restraining Order. The temporary restraining order, if granted, would prevent the employee from working for the competitor for a specific period of time. The employee will probably be prohibited from working for the competitor until the end of the lawsuit. You can also sue the former employee to recover damages if your company's business has suffered.
Even if there is no non-competition agreement, in the event that an employee is misusing or has stolen a former employee’s trade secret, Connecticut’s Uniform Trade Secrets Act (CUTSA) provides the former employer with some remedy. CUTSA prohibits the acquisition of trade secrets through theft, bribery, misrepresentation, breach or inducement of a breach of duty to maintain secrecy, or espionage through electronic or other means, including searching through trash. A plaintiff victimized by a defendant’s wrongful acquisition of a trade secret may be awarded money damages in the amount of the actual loss suffered or the amount by which the misappropriating party has been unjustly enriched. A plaintiff may also sue for injunctive relief. In cases of willful and malicious misappropriation, the court may award punitive damages.
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