Land of the Lost: The Antiquated Notion of Geographically Based Non-Competes

by Andy Arnold on March 15, 2011

The more non-compete matters I review and litigate the more certain I am that geographically based non-competition covenants should be per se unenforceable.  What is the logic of preventing an employee from selling widgets in Greenville County just because he has sold widgets to certain customers located in Greenville County? (There is none.) How are such non-competes ever reasonable in a post-employment covenant?  (They are not.) Isn’t such a non-compete always broader than it needs to be to protect the former employer’s legitimate interest? (Yes.)The increased use of non-solicitation provisions have helped expose the overreach of  geographically based non-compete agreements.  A non-solicitation provision (those which are enforceable) will prevent a former employee from contacting his former employer’s existing customers to sale competitive products and/or services.  It is a uniform requirement of enforceability for any restraint on trade that there be a legitimate interest that is in need of protection, and most employers argue (and most courts agree) that a company’s relationships with existing customers constitute such a legitimate interest. Although the fairness and necessity of a non-solicit can be debated, non-solicitation agreements certainly provide all the protections an employer needs to preserve its existing client base.

The other protectable interest advanced by employers in defense of post-employment non-competes is its trade secrets.  Employers assert that certain confidential information and/or trade secrets justify restrictions on competitive employment. But, of course, trade secrets have no geographic boundaries; what do you think an employer’s response would be to the proposal not to use its trade secrets in South Carolina but to be able to use them anywhere else?  The company would be incredulous.  And so, it is just as ludicrous that a former employer will attempt to restrict an employee’s employment geographically based upon those same boundless trade secrets.

It seems clear to me that in most, if not all, situations an agreement not to solicit existing customers and an agreement to refrain from disclosing and/or using trade secrets will render  geographic non-competes obsolete.  Certainly, there may be a few circumstances where the scope of knowledge of trade secrets will be asserted as the basis for more restrictive covenants, but even in these instances, geography seems to be of little relevance.  Counsel for employees seeking to beat a non-compete should begin a wholesale attack on geographically based non-competes, and courts should begin to move past the model of the past when business was mostly territorial bound.

NOTE: I have excluded non-competes arising out of the sale of a business since a geographical limitations might be relevant when someone sales a retail operation with a local presence.  It also seems that the above might not apply to local media personalities who have geographical restrictions, although these non-competes are otherwise problematic.  I welcome any argument about the above—to sharpen the logic will require some blunt rebuttals.

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