Employers are beginning to demand non-compete agreements as a condition of employment more frequently than in the past. These agreements were designed as a legal restriction to prevent the disclosure of critical business information to competitors when key personnel changes jobs.
However, complying with a non-compete agreement can also have benefits for the employee. A closer look at non-compete agreements reveals the legal issues involved in these documents.
What Are Non-Compete Agreements?
Non-compete agreements are legal documents that prohibit certain key employees, and sometimes all employees, from working for a company’s competitor. The purpose of a non-disclosure agreement is generally to prevent sensitive business information from being used to unfairly compete against the company’s interests.
These types of agreements are becoming more common in today’s workplace, as more employees have access to data on computers or are otherwise able to view confidential company information in the process of doing their normal tasks.
Benefits of Non-Compete Agreements For Employers
When a non-compete agreement is in force, employees can access information within the business environment freely, which allows them to accomplish tasks with greater efficiency. The employer is protected from employees taking vital information about processes or data that could be used to start their own competing company.
It also prevents employees from going to a competing business and using the company’s unique data to give the new employer a competitive advantage. In this way, companies are prevented from unfairly stealing employees with proprietary information.
In addition, a non-compete agreement that is in force for a period after employment allows information to change sufficiently so that it will have less value to a subsequent employer of the individual.
Benefits of Non-Compete Agreements For Employees
Non-compete agreements are often accompanied by a monetary remuneration that is intended to sweeten the deal of limiting the future employment options of the employee. In this case, courts may consider the agreement as part of the employment contract that the employee has agreed upon, in order to acquire a position of responsibility and trust within the company.
The non-compete agreement can also provide the employee with greater negotiating power in terms of salary, in that the employer can be assured of the employee’s loyalty, both during the time of employment and for a period after employment.
Non-Compete Agreements in Arizona
In the state of Arizona, non-compete agreements must be reasonable in time and geographical scope in order to avoid exploitation by employers.
In general, a time frame of 12 months is used as the standard, but this can vary greatly depending on the type of industry and other factors involved. However, many employers craft an agreement that is overly broad and poorly drafted, leaving them vulnerable to being thrown out in court when litigated.
An attorney experienced in employment law can help to determine if a non-compete agreement has a good chance of being upheld in a court of law or whether it is unenforceable under practical considerations. In addition, non-compete agreements should be reviewed by an attorney periodically to ensure it is in compliance with changes in the law.
How Non-Compete Agreements Are Enforced
Each state determines the procedure and extent to which non-compete agreements are enforced. In addition, these laws can change over time, which makes having legal counsel important for parties who will be protected or restricted by the agreements.
Arizona courts have a history of disregarding agreements with lengthy time frames. However, recent decisions have reversed this pattern, with the need for great protections for certain types of companies. Generally, there are two parts to any non-compete agreement, the “trade secret portion” and the prohibition on working for competitors.
These two issues of non-compete agreements are generally decided on a case-by-case basis, taking into consideration the unique needs of each industry. As industries become more technically oriented, the need for an expanded view of the agreements could be expected in the future.
Agreements Must Have A Legitimate Business
One of the critical requirements of the non-compete agreement is that it must have a legitimate business need. The goal of the agreement cannot simply be to hamper competition from other companies. It must specifically protect unique internal data or technical processes of the business in question.
This requirement prevents the use of the non-compete agreement to benefit one company over others in the same industry or a related industry.
Non-Compete and Right To Work
One question that often comes up in regard to non-compete agreements is Arizona’s Right To Work law.
The Right To Work law ensures that residents of Arizona are not forced to join a union as part of their employment, nor can they be punished if they choose to leave the union if they so choose. Generally, Right To Work laws does not have a legal effect on non-compete agreements, which are considered part of individual employment contracts.
Agreements Must Be Limited in Length and Scope
Arizona law requires that non-compete agreements be limited in scope and must always address a unique need for the industry to protect its specialized information. Non-compete agreements are most frequently required of key employees but may affect a broader range of employee categories. Many companies fail to make their case for having unique information that requires special protection, and the agreement may be struck down in court.
In other legal cases, the agreements themselves are badly written and invalidate the justification for protecting information.
Agreements Must Not Violate Public Policy
Another of the criteria for determining the enforceability of non-compete clauses is whether the legal document violates public policy. For example, the document must not be so restrictive as to prevent the employment of the individual entirely, nor should the restrictions prevent the public from being able to receive vital services.
The state of Arizona has the right to “blue pencil” certain parts of non-compete agreements, leaving other portions of the contract in force. This measure helps to ensure that employees are not unduly hampered in their employment by the agreement.
Current Arizona law puts a number of restrictions on non-compete agreements between employers and employees. Because of the complexity of these laws, parties may require legal counsel before entering into these agreements.
In addition, legal help may be required when questions about violating a non-compete agreement arise. Individuals who feel their options for employment have been unfairly restricted by a non-compete agreement they have signed should discuss the matter with an attorney that has experience in these matters.