What You Need to Know

Covid-19 has impacted and continues to impact almost every aspect of our lives, and the business world is no exception. In this blog post, we will discuss how non-compete agreements have been impacted by Covid-19 and what you need to know about them in today’s business environment. Non-compete agreements are one area of employment relationships that is causing a lot of confusion. Let’s take a look at some of the most common questions about them.

What are the basics of a non-compete agreement?

A non-compete agreement is a type of restrictive covenant used by employers to prevent their employees from competing with them during or after their employment.  Non-compete agreements are designed to protect the employer’s business interests, trade secrets, and other confidential information.

In North Carolina, a non-compete agreement or clauses must be:

• in writing and included in a contract
• exchanged for valuable consideration
• reasonable with respect to duration, scope, and territory
• designed to protect a legitimate business interest and generally not against public policy

North Carolina courts consider duration and territory together so that a longer restricted duration is acceptable when the geographic scope of the restriction is small and vice versa. To demonstrate the reasonableness of the geographic restriction in a non-compete agreement designed to protect customer relationships, an employer must show where its customers are located, how the locations relate to its business, and why the restriction’s geographic scope is necessary to protect those customer relationships.

What changed about non-compete agreements since covid?

There have been several conceptual changes to the interpretation and enforcement of non-compete agreements as a result of Covid-19. The most notable change is that many courts are now less likely to enforce them. This change with respect to enforceability is largely due to a greater need for people to be able to find new employment during these difficult times. Non-compete agreements can still be enforced in some cases, but it is important to know that they may not be as enforceable as they were before the pandemic.

Throughout the pandemic, the instances of remote work skyrocketed. Of the remote workforce, a recent WSJ survey indicated that 41% of employees surveyed wished to remain remote workers indefinitely. Globally, 53% of employed respondents to the survey indicated they could do their job remotely.

As an employer, how should you adjust your non-compete agreement to reflect the new reality of work?

There are a few things you can do to adjust your non-compete agreement to reflect the new reality of work. First, you should consider making it shorter. Shortening its duration will make it more likely to be enforced by a court. Second, you should consider limiting it to a specific geographic area that is most important to your business (where feasible). Such a limitation will prevent your employees from leaving your employ and going to work for a competitor in your backyard. Finally, you should make sure the non-compete agreement is clear and concise. Doing so will help to ensure that your employees understand their agreement and increase the likelihood that they will comply with it.

A few notes specific to North Carolina to consider:

• North Carolina has not yet shed light on how remote work affects the geographic scope.
• North Carolina case law indicates the location of the customers may be the most important factor as it is related to the geographic scope.
• The foregoing means employees in North Carolina may be free to work for competitors remotely, without moving, so long as the customers are not in their local region.

Non-compete agreements are just one of the many things that have been impacted by Covid-19. If you have any questions about them, or if you need help adjusting your agreement to reflect the new reality of work, please contact our office. We are happy to help you navigate these difficult waters. Thank you for reading!