Non-compete Agreements

By Dena Wurman, MPA, JD

A non-compete agreement is a contract.  Usually an employer has the employee sign one before starting to work at the new company.

The purpose is to prevent an employee from working for a competitor.  Most courts have found these agreements to be legally binding as long as there are reasonable limitations as to the geographical area and time period.

If the terms are reasonable, a court may prevent an employee from exploiting information derived from the current employer or working for a new employer.

In a case well-known in the tech industry, Amazon.com Inc. v. Zoltan Szabadi, Amazon went to court in Seattle to enforce their non-compete agreement.  Amazon tried to prevent a former employee from working for competitor (Google.)  The employee signed a non-compete with Amazon.

In response, the employee filed a Motion for Summary Judgment, to nullify the agreement. Court denied in part, granted in part so the employee was freed from some of his obligations to Amazon.  But not all of them.

Seattle courts have generally permitted reasonable non-compete agreements. In Washington, a court will enforce a reasonable non-compete if:

1) The restraint is reasonably necessary to protect the business or goodwill of a

party;

2) The restraint does not impose upon the individual any greater restraint than is reasonably necessary to protect the business or goodwill; and

3) The public is not injured as a result of the loss of service and skill of the individual.

Legislators in Washington are trying to change the law now.

According to proponents of a house bill, non-competition agreements are used too often. They cause waste. They inhibit individuals from moving between jobs. They are oppressive. The agreements are expensive to challenge in court. Why not just use a nondisclosure agreement instead?

According to opponents of the proposed bill, nondisclosure agreements are insufficient to protect an employer’s investment. Employers provide employee training. Departing employees can steal business. An employee could go to court to get the agreement invalidated, or an employer may not attempt to enforce the agreement if they believe it is unenforceable.

In my own practice, I have had experience with non-competes in the health care and aviation industries. In both cases, there was no litigation. In one health care case, the employer waived the non-compete clause when the employee agreed to voluntary termination. In another, it was modified to a more reasonable geographic region from a worldwide restriction, before it was signed.

Attorney Dena Wurman has helped individuals, business owners, organizations and attorneys in employment matters, most recently as Outside Counsel to the University of New Mexico.