You Thought You Were Protected? When a Non-Compete Isn’t Enforceable (Maybe)

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If you have or want enforceable non-compete agreements with employees, read on. 

Here’s a hypothetical: You are looking to hire a salesperson, and you find just the right person, John. Your company has a great non-compete agreement that will ensure that when John leaves your employment, he cannot work for a competitor for two years. To save time on his first day, HR sends an onboarding package to John, asking him to complete the new hire paperwork, including the non-compete agreement, and return it. John signs the non-compete and sends it in. You and John agree that he will start work in two weeks, and John gives notice to his current employer. Perfect, right?

Some States Won’t Enforce Non-competes Unless the Person Was an Employee at Signing

As we all know, non-compete law is state-specific. At least two states, Alabama and Louisiana, require that a person be an employee when he signs the noncompete or it is not enforceable.

  • Alabama’s requirement is part of its statute and allows restrictive covenants with employees, which has been read to require that the person actually be employed when he or she signs a non-compete agreement.
  • Louisiana’s requirement stems from a recent Fifth Circuit case, Rouses Enterprises, LLC v. Clapp. In the Rouses matter, James Clapp signed a non-compete and started work sometime later. The court held that the agreement was not enforceable because he was not an employee at the time of signing.

Check the Law of your Jurisdiction

The moral of the story is that non-competes are tricky and the law can change. In some jurisdictions, such as Alabama and Louisiana, you have to get the employee to sign the agreement on or after employment starts. This can mean that a non-compete that you get from a terminated individual (as part of a settlement agreement) may not be enforceable.

Check your state law requirements on all aspects of the agreement. You don’t want to have a great non-compete that you can’t enforce.