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Does your noncompetition agreement actually protect your business?

On Behalf of | Jan 31, 2011 | Uncategorized

The following is part 3 of 5 of our blog series for both employers and employees:

The Law of Noncompetition and Nonsolicitation Agreements in Oregon

The Comparison

Noncompetition and nonsolicitation agreements are similar in that each is a contractual covenant that limits an employee’s future employment activities. Generally, a noncompetition agreement prohibits an employee from working for an employer’s competitor or starting up a competitive business, while a nonsolicitation agreement prohibits an employee from soliciting business from the employer’s customer list. In either case, an employee gives up certain rights, such as the right to freely pursue future employment and entrepreneurial opportunities.

A Noncompetition Agreement is a broad restriction, placing blanket limitations on a former employee’s ability to work in a particular field or for certain competitors. The language of a noncompetition agreement might read something like the following:

Employee agrees that during her employment and for two (2) years after the end of her employment, Employee will not own, participate in, manage, advise, think about, imagine, or look twice at, any business that competes directly or indirectly with [company] anywhere in the universe.

While, I of course have exaggerated the scope of these provisions in the above, the bottom line is that a noncompetition agreement generally seeks to restrain an employee from as much as the law will allow.

A Nonsolicitation Agreement is usually more specific; it seeks to protect an employer’s interests by restricting the former employee’s ability to seek customers and other employees of the former employer. A typical nonsolicitation agreement will prevent the employee from:

soliciting any former, present, and future clients, vendors, suppliers, distributors, employees, independent contractors or other business relations of [company] or suggesting to any of the same to end their relationship with [company].

But don’t be fooled, such provisions can be just as restrictive as a noncompetition agreement. However generally, a nonsolicitation agreement is less restrictive than a noncompettion agreement.
In most cases, a former employee bound by a nonsolicitation agreement, but not a noncompetition agreement, is generally free to compete against the company, as long as she isn’t soliciting clients or other business relations of her former employer.

Regardless of the type of post employment restrictions placed on an employee, once the employment relationship has ended, many employees either outright break these provisions or hire legal counsel seeking to invalidate them. (Some do, however, begrudgingly succumb to the restrictions.)

Litigation over the enforceability of a restrictive covenant can be costly for both parties. Whether you’re the employer or employee, knowing how these provisions operate and what the law allows is essential.

Jump to: Part 1: Introduction or Part 2: The Landscape