When Covenants Not to Compete and NDAs Reach Too Far
May 31, 2017 9:37 am,
Covenants not to compete and non-disclosure agreements (NDA) were covered on this blog previously, because it’s so important for employers to be extremely careful in their wording on non-compete and non-disclosure agreements. If they try to restrict their employee’s actions too much, an employer may discover their agreement has reached too far and is invalid.
When non-compete and non-disclosure agreements are too broadThat’s essentially what happened in the case at hand, Fay vs. Total Quality Logistics. TQL, an Ohio-based transportation and logistics company, hired Joshua Fay in late 2012. As required by the company, Fay signed TQL’s Non-Compete, Confidentiality, and Non-Solicitation Agreement before commencing work. The Agreement was to be enforced under the laws of Ohio.
The following summer, Fay was fired when TQL discovered he had founded a competing business, and both parties filed suit against each other over the issue of the Agreement Fay signed.
The South Carolina Court of Appeals found that, though the Agreement was to be enforced under Ohio law, it offended South Carolina public policy, and was therefore not enforceable. The non-disclosure provisions effectively acted as non-compete provisions but had no restriction on time (and in fact explicitly stated the non-disclosure was to be in effect “at all times”), which violates the state’s public policy as it restricts an individual’s right to exercise their trade.
Lesson for employers on covenants not to compete and NDAsThe lesson here for employers is to be extremely careful in your wording on covenants not to compete, NDAs, and other contracts that have any limiting effect on your employees’ current or future ability to work.
Employers also need to be cognizant of these issues with regards to different states’ laws. Even if your state’s courts find your contracts “reasonable,” another state’s courts may not, depending on the state’s public policy. The internet cannot provide reliable guidance on this topic, which is why it’s so important to discuss it with an attorney who’s well versed in this topic.
For guidance on how to craft your company’s covenants not to compete and NDAs, or for advice on one you’ve already signed, contact Mt. Pleasant business attorney Gem McDowell. He and his associate Lauren Turowetz can be reached at the Law Office of Gem McDowell in Mount Pleasant at (843) 284-1021 or by filling out this contact form online. Contact them today.