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So you have non-compete agreements in place. Are they still enforceable?

You’ve assessed your company’s needs and have figured out that you have key personnel who should have non-compete agreements.  You’ve had your lawyers draw up reasonable agreements, you’ve offered consideration in the form of new employment or a promotion, and your employees signed.  All is well, right?

Maybe not.  Keep in mind that changes in circumstances could render your previously-enforceable non-competes unenforceable.  For instance, has the employee’s job description changed?  If so, the scope of activities barred by a non-compete may need to be revisited.  Similarly, if the employee has been moved to a new location, you may need to revisit any geographic restrictions in your non-compete agreement to see if those are still reasonable and make sense.

Another situation requiring a review of a company’s non-compete agreements is a sale or merger of the company.  If your company merges (or is acquired) and undergoes substantial reorganization, it is imperative to reassess non-compete agreements of key personnel.  Mergers bring substantial changes to the terms and conditions of employment, and, in turn, the terms and conditions applicable to your non-compete agreements may have changed.  If there is any substantial and material change to a key employee’s terms and conditions of employment, then the employee’s non-compete agreement must be revisited.

If you’ve determined that there have been substantial changes to the terms and conditions of employment of key personnel and that you need to revisit your non-compete agreements, what do you do?  First, reassess and revise the agreements consistent with current conditions.  Second, determine whether you need to offer new consideration to the employee in exchange for signing a new agreement.  Remember that the non-compete agreement is a contract, and any amendment to the contract is itself a new contract that requires consideration.  Continued employment can be considered consideration, but courts are increasingly finding that continued employment is insufficient consideration to support a revised non-compete agreement, especially if the terms are onerous.  It is better practice to offer at least some small amount of consideration in addition to continued employment to ensure that your revised non-compete is enforceable.

MMLK deals with non-compete agreements of every shape and form and is ready to answer your questions about the continuing enforceability of your non-compete agreements.  If you have any questions or concerns about your non-compete agreements, give us a call.

This article is intended as a summary of newly enacted federal law and does not constitute legal advice.

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