Published on:

Non-Compete Agreement Invalidated By Federal Court For Being Too Broad

Legal documents are known for being long and boring. They’re usually good for curing insomnia, but there is a reason for their length and detailed legal language. A good contract should prohibit all undesirable behavior without being too broad. For example, non-compete agreements, which are often included in employment contracts, are provided by the employer to prevent the worker from taking trade secrets and/or clients to a competing company.

Most non-compete agreements are restricted in time (usually six months to a year after employment ends) and geography (within a certain number of miles of the employer, or to a particular state or country). Noncompete agreements that extend too far in time or space risk being considered unenforceable in a court of law.

NanoMech, Inc. is a nanotechnology company that specializes in lubrication, energy, biomedical coatings, and strategic military applications. They attempted to write a noncompete agreement for their employees that was simple and straightforward. It read: “The Employee agrees that during the term of this Agreement, and for two (2) years following termination of this agreement by the Company, with or without cause; or, for a period of two (2) years following a termination of this Agreement by the Employee, the Employee will not directly or indirectly enter into, be employed by or consult in any business which competes with the Company.”

That is the company’s entire noncompete agreement. Although it certainly prohibits employees from taking trade secrets and clients to a competitor just across the street from NanoMech, it also prohibits them from taking a job in the mail room with a competitor in China – a position that would be far less threatening to NanoMech. Despite the fact it is unlikely that NanoMech meant to include the latter in their agreement, the broad language of the contract technically includes it.

When an employee of NanoMech left to work for a competitor, NanoMech said the employee had violated the terms of the noncompete agreement. The employee argued the non-compete agreement was too broad to be enforceable.

The case went to the federal district court, where it was analyzed under Arkansas law. Noncompete agreements are subject to the laws of the state in which the worker was employed. Most states recognize noncompete agreements, although how strict they are about requirements varies from state to state.

Like most states that recognize noncompete agreements, Arizona requires the employer to have a legitimate business interest that is protected by the agreement. This means that absence of (or failure to enforce) the noncompete agreement could cause financial harm to the company, whether through loss of clients or loss of a competitive edge if a competitor gains access to information about new technology or marketing strategies.

Although the court agreed NanoMech had a vested interest in protecting its sensitive technology, it also agreed with the employee that the contract was too broad to enforce. NanoMech appealed the decision and the case went to the Eighth Circuit Court, which upheld the ruling of the district court.

Our Chicago non-compete and non-solicitation agreement lawyers have defended high level executives in covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago business. You can view that article by clicking here.

DiTommaso-Lubin handles litigation over non-compete clauses for individuals and businesses of all sizes, including small or closely held businesses for whom competition from an ex-employee can be a serious threat. Our Chicago business lawyers have substantial experience in restrictive covenant and breach of contract cases, and we are proud of our record of strong results.

DiTommas-Lubin a Chicago business litigation law firm represents both plaintiffs and defendants in such cases, and can also help stop litigation before it starts by reviewing contracts to look for covenants and clauses that could create problems later. Based in Oakbrook Terrace and downtown Chicago, our Schaumburg noncompete clause lawyers take cases from Naperville, and Wheaton and many other cities throughout Illinois, as well as in Indiana, Wisconsin and the entire United States. To learn more or set up a free consultation, please contact us through the Internet or call toll-free at 1-877-990-4990 today.