Noncompete agreements, also referred to as “noncompetition agreements” and “covenants not to compete,” are contract provisions intended to prevent an employee or former business owner from competing with his or her employer after termination of the employment relationship. Generally, such agreements attempt to restrict the future employment of the former employee for a defined period of time within a particular geographic region. We are frequently called upon to interpret the enforceability of such provisions.
North Carolina courts view noncompete agreements generally with disfavor as a restraint on trade and an individual’s right to earn a living in his chosen occupation. An employer seeking to enforce an agreement therefore bears the burden of proving the reasonableness of the agreement. Hartman v. W.H. Odell & Assocs., 117 N.C. App. 307, 311, 450 S.E.2d 912, 916 (1994).
To be enforceable under North Carolina law, a noncompete agreement must be:
- in writing;
- reasonable as to time and territory;
- made a part of the employment contract;
- based on valuable consideration;
- designed to protect a legitimate business interest of the employer; and
- not contrary to public policy.
Id.; Phelps Staffing LLC v. C.T. Phelps, Inc., 740 S.E.2d 923 (N.C. Ct. App. 2013).
Most litigation involving noncompete agreements revolves around the second factor, the time and territory reasonableness requirement. There is no fixed set of rules about what a court will find to be reasonable or unreasonable. But generally, time and territory will be evaluated together. The shorter the period of time and the more narrow the geographic restriction, the more likely the covenant will be enforceable. Courts also consider carefully the business interests the former employer is trying to protect. A time limitation might be justified on grounds that it is reasonably necessary to prevent the former employee from taking contracts or customers away from the former employer. Geographic limitations can be justified if the former employer is trying to prevent the former employee from stealing customers or using information he or she learned during the employment relationship to compete. In such cases, a court will focus on the nature of the employer’s business and places where it transacts business. It will also focus on the areas where the employee worked or was assigned, his or her role in the company, and his or her knowledge of the employer’s business operations.