What Are the Five Elements of an Enforceable Non-Compete Clause in North Carolina?

One of the most valuable assets for businesses and big companies is their human capital: their employees. Companies hire employees that can produce valuable work for them. Particularly in certain industries in which intellectual property is integral to the business they’re in, these businesses will often hire their talented employees under contracts. Many of these employee-employer contracts will contain language that says that if the employee leaves their current company, they can’t go work for a company with which their current employer competes. These are known as “non-compete clauses” or “covenants not to compete.”

While businesses use non-compete clauses to protect their intellectual property and trade secrets, there can be challenges upholding them in practice. The difficulty that non-compete clauses can create for employees when trying to move forward in their careers or jobs is why North Carolina courts have generally regarded non-compete clauses as unenforceable unless they meet five requirements.

#1: Consideration

When it comes to the law, consideration has a very specific meaning. To enter a legal contract, someone gives something in exchange for consideration, usually payment, from someone else. So when an employee enters a contract with an employer and that contract contains a non-compete clause, the employer is promising to hire the employee in exchange for the employee promising not to work for a competing company at the end of their tenure at the current company.

#2: Protect a Legitimate Business Interest

A company can’t just include an arbitrary non-compete clause in an employee’s contract and expect it to be enforceable. For a non-compete clause to be enforceable, it has to serve the purpose of protecting the company’s intellectual property or trade secrets. It can’t be a generic non-compete clause. It has to be specific to the company’s purpose.

#3: Included in the Employment Contract

The non-compete clause must be a part of the employee’s employment contract to be enforceable in North Carolina. An employer can’t have an employee sign a non-compete contract that only contains the non-compete clause and nothing else. An employment contract that has a separate non-compete agreement that the employee signed long after they were hired wouldn’t be recognized by a North Carolina court if the employer tried to enforce it.

#4: Reasonable with Regards to Time and Location

Many laws and courts require that, for non-compete clauses and agreements to be enforceable, they have to be reasonable. An employer can’t include a non-compete clause in an employment contract that states that the employee can’t work for a competitor in perpetuity, for example. Nor can a non-compete clause state that you can’t work for any competitor anywhere in the United States. Either of these examples would be unreasonable. So the court will consider the specific terms of the non-compete clause and the implications of it for the employee when determining whether it’s unreasonable, and, therefore unenforceable.

#5: Written Agreement

Generally, you can enter into a contract either verbally or in writing. Two individuals or two businesses can give the required consent, consideration, offer, and acceptance verbally, and the resulting contract would still be legally enforceable. For a non-compete agreement to be enforceable, however, it has to be in writing. No exceptions.

Contact Mullen Holland & Cooper P.A.

If you’re looking to protect your business interests, contact the North Carolina labor and employment lawyers at Mullen Holland & Cooper P.A. We can help you draft non-compete clauses for your employees that specifically address your business’ needs and interests. Call us today at 704-864-6751 or contact us online to discuss how we can help you manage your business.